A Brief Overview of the Dow Jones Index

In the US, the Dow Jones Index is one of the major indicators of market movements. The other two major market indexes are the NASDAQ and the S&P 500. Collectively, they are known as the Security Market Indicator Series (SMIS). It is a price weighted average index of 30 major companies. The Dow was founded in 1896 by Charles Dow, and at that time, represented the dollar average of twelve stocks. Since that time to present, it now has thirty components and is thus referred to as the Dow 30. In the old days, investors did not buy stocks because the stock market was not held in high regard. Instead, they mainly invested in bonds.

 They did not have the technical indicators or different theories we have today, and they did not have any clear idea about how the market was moving, whether it was up, down or sideways. Because of this, they could not forecast trends. This would have made it harder to profit from stock picks. It is very important to have stock charts, and to be able to perform technical analysis on any stocks to determine where the price may reverse. Without this kind of information, you could only hope the stock would rise because you heard from the company owner that they had a good year. Thanks to the creation of the Dow Jones index, all that changed, and with it came a completely new way of forecasting.

Investors trading stocks on the Dow Jones index will be able to invest in a number of ETFs or exchange traded funds that are available through different asset management companies. Investing in these funds reduces your overall risk, because the fund is not dependent on the performance of one stock. This means that if one stock under performs, the other stocks in the fund will still allow you to make a profit, provided they are performing well.

Before you get involved in trading on the Dow Jones index, you should research the historical movement of the index. Markets move in a cyclical manner and have four phases. By using technical analysis, you can determine where the next trend will end and where the next one will start. Getting into the market that is bearish will not benefit you. Even if you have the best stocks, the market will pull it down. If you are looking to invest, try to buy just as the bulls are stepping in with the prices still low.