Dow Jones index analysis before investing and trading

What do I need to know before trading the Dow Jones index?

Before investing in the Dow Jones, let's take a few moments to take a closer look at this market and its role. This stock market index was originally created in 1896 by the economist Charles Dow.  Since its creation the DJ30 index has experienced a strong expansion and over time has become one of the most traded indices on the American stock markets next to the Nasdaq, the S & P 500 and the Russell 2000.

Given the age and history of this stock market index, the Dow Jones also enables an overview and understanding of the historical growth of the American economy over more than a century.

The Dow Jones Industrial Average which is more commonly known as the Dow Jones 30 is a well established and respected index on the American stock markets. As indicated by its name it is composed of the 30 top American companies in terms of stock market capital.

Concerning the calculation of the Dow Jones index rate it should be noted that this index is weighted according to the value of the company shares of which it is composed, not according to the companies’ stock market capitals as is the case with the Japanese Nikkei 225 stock market index. This fact is important as it directly influences the weight each company can have in the calculation of this index.

The Dow Jones is not only followed by stock market investors, it is also monitored by economists worldwide as it is one of the oldest indicators of the American economic health. It is therefore considered that a rise in the rate of the Dow Jones Index represents a growing American economy whereas, to the contrary, a fall in the rate of this index indicates a crisis or recession of this economy.

Although the Dow Jones is particularly popular with investors, the same is true for some of the assets of which it is composed which are highly sought after and traded throughout the world such as Nike, Walt Disney, McDonalds and Goldman Sachs. In fact, all activity sectors are represented in this exceptional stock market index.

How to invest online in the Dow Jones?

There are several ways of investing in the Dow Jones stock market index online, and we'll explain them in detail here.

Investing in the Dow Jones with ETFs

Investing in the Dow Jones using ETFs (Exchange Traded Funds) offers a practical and diversified way of tracking the performance of this iconic stock market index. ETFs generally replicate the composition and performance of the Dow Jones Industrial Average (DJIA), allowing investors to buy a share of the whole index rather than individual stocks.

Dow Jones ETFs offer instant exposure to a diversified basket of stocks from the 30 largest US companies. This diversification reduces stock-specific risk and provides balanced exposure to different sectors of the economy.

Here are some examples of ETFs that track the performance of the Dow Jones Industrial Average (DJIA):

• SPDR Dow Jones Industrial Average ETF (DIA): The SPDR Dow Jones Industrial Average ETF is one of the most popular ETFs that replicate the performance of the Dow Jones. It aims to match the performance of the index by holding a portfolio of stocks similar to those included in the DJIA.
• iShares Dow Jones Industrial Average ETF (IYY): The iShares Dow Jones Industrial Average ETF is another ETF that tracks the performance of the Dow Jones Industrial Average. It seeks to mirror the performance of the index by investing in a portfolio of stocks of the companies included in the DJIA.
• ProShares Ultra Dow30 ETF (DDM): The ProShares Ultra Dow30 ETF aims to provide a daily return that is twice (2x) the daily return of the Dow Jones Industrial Average. It uses financial derivatives to achieve this objective.
• SPDR Dow Jones Industrial Average UCITS ETF (DJIA): The SPDR Dow Jones Industrial Average UCITS ETF is designed to track the performance of the Dow Jones Industrial Average. This ETF is listed in Europe and offers European investors exposure to the US index.
• Direxion Daily Dow Jones Bull 3x Shares ETF (DIA): The Direxion Daily Dow Jones Bull 3x Shares ETF aims to provide a daily return that is three times (3x) the daily return of the Dow Jones Industrial Average. This ETF also uses derivatives to achieve this objective, but carries a higher level of risk due to its leverage.

Trading the Dow Jones with CFDs or Contracts for Difference

Trading the Dow Jones with Contracts for Difference (CFDs) offers investors a flexible method of speculating on the price movements of this iconic stock market index.

CFDs allow traders to use leverage, which means they can control a larger position with less initial capital. This amplifies potential gains, but also exposes traders to an increased risk of loss, as losses can also be magnified.

With CFDs, traders can take either long (buy) or short (sell) positions on the Dow Jones. This means that traders can potentially make profits even when the index is falling, by taking advantage of directional movements in the market. Dow Jones CFDs offer high liquidity and are traded on 24-hour online platforms. Traders can open and close positions quickly during market hours.

Let's say a trader wants to speculate on a rise in the Dow Jones using CFDs. Here is an example of CFD trading on the Dow Jones:

• Market analysis: The trader analyses the market and concludes that the Dow Jones is about to rise, based on technical signals or positive economic events.
• Opening the position: The trader opens a long (buy) position on the Dow Jones using CFDs. Let's assume that the Dow Jones is currently at 35,000 points and the trader buys 10 CFDs at that price.
• Position size and leverage: If the trader uses a leverage of 1:10, this means that each CFD represents 10 times the size of the initial position. So, with 10 CFDs, the total position size is 100 CFDs, which equates to an exposure of 1,000 Dow Jones stocks.
• Position monitoring: The trader monitors the position regularly to identify signs of market reversal or to adjust stop-loss and take-profit levels. The trader can also use limit orders to secure profits at specific levels.
• Closing the position: If the Dow Jones rises as expected, the trader may decide to close his position by selling his CFDs. Suppose the Dow rises to 36,000 points and the trader decides to close his position. The profit made would be the difference between the initial purchase price and the sale price, multiplied by the size of the position.
• Calculation of profit or loss: If the Dow Jones reaches 36,000 points, the profit made would be 1,000 points (36,000 - 35,000) multiplied by the size of the position (100 CFDs), i.e. 100,000 points. If each point is worth 1 dollar, the profit would be 1,000 dollars.

Performance of the Dow Jones stock market index

The Dow Jones index, created in 1896, is one of the oldest and most closely followed stock market indices in the world. It tracks the performance of the 30 largest US companies listed on the New York Stock Exchange (NYSE).

Here are the major stages in its historical development :

19th century:

• The Dow Jones experienced significant growth at the end of the 19th century, largely due to the boom in American industry.
• The Panic of 1893 led to a brief fall in the index, but it then recovered quickly.

Early 20th century:

• The Dow Jones enjoyed steady growth in the early 20th century, with a few periods of volatility.
• The First World War caused the index to fall, but it then recovered and reached a new high in 1929.

1930s:

• The crash of 1929 led to a dramatic fall in the Dow Jones, which lost almost 90% of its value.
• The Great Depression prolonged the decline in the index, which only reached its pre-crash level in 1954.

The 1950s and 1960s:

• The Dow experienced significant growth during these years, largely due to the booming US economy.
• The Vietnam War led to some volatility, but the index continued to rise.

1970s:

• The Dow Jones experienced a period of stagflation, with low growth and high inflation.
• The stock market crash of 1973-1974 led to a significant fall in the index.

1980s and 1990s:

• The Dow Jones experienced significant growth during these years, largely due to the rise of information technology.
• The dot-com bubble of the late 1990s led to a sharp rise in the index, followed by a sharp fall in 2000 and 2001.

The 2000s:

• The Dow Jones experienced a gradual recovery after the dot-com bubble.
• The global financial crisis of 2008 led to a further fall in the index, but it then recovered quickly.

2010s:

• The Dow Jones experienced exceptional growth during this decade, reaching new all-time highs every year.
• This growth was fuelled by the rise of smartphones, cloud computing, social networking and other revolutionary technologies.

2020s:

• The COVID-19 pandemic led to a brief fall in the Dow Jones in 2020.
• The index then recovered quickly and reached new all-time highs in 2021 and 2022.

Here is a table showing the evolution of the Dow Jones share price over the last 10 years: 

What are the opening days and periods of the Dow Jones Index?

As you can imagine and given that the Dow Jones is an American Index, the trading hours and the quotation times of this index are not the same as those of the European markets and stock market indices.  

Concerning the time when it is possible to invest in the rate of the Dow Jones index, the opening hours are from 9.30 a.m. to 4 p.m. Eastern time. The opening of the American stock markets trading period is in fact when the Asian markets have already been closed for two hours. However part of the American trading session overlaps the European trading sessions as the European financial marketplaces are still open when trading starts in the USA. These trading periods when the American and European markets  are both open simultaneously are particularly volatile with traders from both areas extremely present and active, the volumes traded are also of course very high.

We then note a general downturn in trades at around 10 p.m. European time until the Asian markets open. However, given that the trading on the Dow Jones is completed through the use of derived products it is possible to take position at almost any time on its rate.

Attention should also be paid to the opening and closing days of the American stock markets which may not be the same as those of the European markets in certain cases.  Of course, the quotations for the U.S. market are available from Monday to Friday with a break over the weekend. The American stock markets are also closed on the American bank holidays which are as follows: 

• The 1st January for New Year
• The 15th January for Martin Luther King Day
• The 19th February for President’s Day.   
• The 30th March for Good Friday
• The 28th May for Memorial Day.
• The 4th July for Independence Day
• The 3rd September for Labor Day
• The 22nd November for Thanksgiving
• The 25th December for Christmas Day

It should be noted here that the economic publications in the United States are also not released at the same time as in Europe. On the market brokers online trading platforms you will find economic calendars that will enable you to learn when the major publications and announcements are expected from the American government. Certain events such as the publication of economic figures, political events or meetings of the Fed are particularly followed by investors and can sometimes occur when the European markets are closed.

How do you perform a technical and fundamental analysis of the Dow Jones?

The two types of analysis to use if you want to get bullish or bearish signals from the Dow Jones are fundamental and technical analysis.

The first analysis, fundamental analysis, is an analysis that will use the market events and publications that are most likely to influence the price of this stock index. Since the Dow Jones reflects the US economy, it is important to keep a close eye on the events that impact the economic health of this country and the different publications of figures such as the unemployment rate, durable goods orders or GDP.

Technical analysis will focus on the study of trends and chart volatility of this index. The objective of this analysis is to discover cyclical movements in order to predict possible future movements. Technical indicators such as MACD, Bollinger Bands, RSI, moving averages, pivot points and support and resistance levels are used for this purpose. All these indicators can be displayed live on the customisable charts provided by online brokers and dealers.

How do I create a trading account to invest in the Dow Jones?

To create a trading account and start trading the Dow Jones, follow these steps:

1. Find an online broker:

Find a reputable and reliable online broker that offers Dow Jones trading. Make sure that the broker is regulated by a competent financial authority and that it offers features tailored to your trading needs.

2. Fill in the registration form:

Once you have chosen a broker, visit their website and look for the account opening option. Fill in the registration form, providing your personal details such as name, address, telephone number and e-mail address.

3. Verification of identity:

For regulatory compliance reasons, you may be required to provide identification documents to verify your identity. This may include a copy of your passport or identity card and proof of your residential address.

4. Choose the type of account:

Select the type of trading account that best suits your needs and trading style. Brokers often offer different account types, such as individual accounts, joint accounts, retirement accounts and so on.

5. Deposit funds:

Once your account has been approved, you will need to deposit funds to start trading. Brokers offer various deposit options, such as bank transfers, credit/debit cards and e-wallets. Make sure you deposit an amount you can afford to lose, as trading involves risk.

6. Download the trading platform:

Some brokers offer their own trading platform, while others use third-party platforms such as MetaTrader. Download and install the trading platform on your computer or mobile device to access the financial markets and place trading orders.

7. Start trading:

Once your account is funded and the trading platform is set up, you can start trading the Dow Jones. Search for the index in the trading platform, select the position size and place your first order based on your market analysis and trading strategy.

Frequently Asked Questions