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The Dow Jones Industrial Average (DJIA), also known as USA 30, is one of the most closely followed stock market indices globally. Interestingly, a significant percentage of the millions of people who follow USA 30 rarely understand how it works. Nor do they effectively trade its stocks.
Here is a comprehensive guide to help you understand the USA 30 index and trade those stocks.
A Deeper Look into Dow Jones and USA 30
USA 30 was created in 1896, meaning that it is one of the oldest indices in the United States. It comprises 30 of the largest companies in the US, but it is no longer considered a true proxy for the industrial niche. This is because only a few of the companies that are on the list are truly industrial.
For example, as of August 2020, some of the companies that were included in the index included:
- Cisco Systems
- Apple Inc.
- American Express
If you take a closer look at the companies included in the list, such as McDonald’s or Apple, you will realize that they have a wide presence in different markets across the globe. This implies that when you decide to trade USA 30 stocks, it provides wide exposure to the international markets. This can help to hedge against negative implications from a weak US economy.
At this point, it is important to also highlight that some criticism has been put forward against the index. One of them is related to the fact Dow Jones is a price-weighted index. This makes it different from other top indices, especially those that use market capitalization. With this in mind, we can assume that if Dow Jones used market capitalization, the index would have a significant difference.
Even with these concerns, it is important to point out that nothing makes stocks on Dow Jones inferior on the market simply because they are price-weighted. If you want to trade USA 30 stocks successfully, below is a summary of what you need.
Select a Good Broker
If you have not opened a brokerage account, it is paramount to select a respected one. This is a broker who can help to increase your chances of trading successfully. A good broker should have an easy-to-use platform that is easy to navigate. In other words, it should be simple for you to use the platform to select your preferred stocks and make deposits and withdrawals.
Furthermore, a good broker should have affordable transaction fees. This will allow you to keep the bulk of the profits you make when trading. You might want to compare different brokers to find one with affordable fees.
Comprehensively Research Your Preferred Stocks
After selecting a good broker, it is time to get down and buy stocks. There are many, but which ones do you choose? Indeed, even when dealing with USA 30, it is still important to decide the specific stocks to deal with. We suggest that you follow the USA 30 forecast to know the stocks that are likely to do well and invest in them.
In addition to USA 30 forecast, it is paramount also to follow the performance of individual companies. Pay special attention to their stocks over the last few months or even a couple of years. You might even consider roping in an expert to help you with a deeper analysis of the stock before making the final decision on what to trade.
Note that it is not advisable to invest all your money in just one stock. Instead, it would be best if you considered diversifying by combining the stocks with other types of assets, such as bonds and precious metals.
Determine How Much Money You Want to Invest in USA 30
Trading stocks is a form of investment, and you need to have a clear budget for it. Importantly, because trading stocks involves taking risks, you should not borrow money to trade stocks, since the returns are likely to go into repaying the interest. If you use borrowed cash and incur a loss, it can easily slide you into debt.
After setting aside a budget, it is also prudent to ensure you only use a small portion of it for every trade. Consider committing something such as 2% of your account for every trade. For example, if you have a budget of $10,000, committing 2% per trade implies that no position you take will exceed $200.
Adopt a Good Trading Strategy
If you want to increase the chances of success when trading USA 30, it is also important to look for a good strategy. If you want to be a day trader, this implies that you open and close positions within a single trading day. You will also need to take a significant amount of time on the trading charts. This is because you will need to follow the price movement and take advantage of short price movements.
If you do not want to use a short trading strategy, such as scalping or day trading, consider adopting a long-term model like position trading. With the position trading method, your focus is not the small daily price movements but long-term trends that can take months or even years.
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Execute Your Trade
Now you have chosen a good broker, selected a budget, and picked a strategy. Therefore, it is time to place your trade.
Make sure to position your take profit at an appropriate position based on your analysis. For example, most traders use technical analysis to identify trends and determine where to position their take profit orders.
As you place your take profit order, you also need to use a stop loss. A stop loss order will protect your deposit if the price of the selected USA 30 stock goes against your prediction. Consider using resistance, support, or pivot to determine where to position your stop loss.
When you decide to trade USA 30, it is important to appreciate that knowledge is power. In addition to the above steps, you should try to gather as much information as possible about your selected stocks. This will increase your chances of making a profit. It is also important to follow USA 30 news, individual company reports, and the effect of important occurrences on the economy. All of this information will help you to understand their likely impact on the stocks you’re interested in.