How to trade the DOW

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Author: Getdealing

The Dow Jones Industrial Average (DJIA) is an Index made up of 30 of the largest and most widely held U.S stocks listed on the New York Stock Exchange.

It was created in the 19th century by then wall street journal editor Charles Dow to gauge the performance of the Industrial sector of the American stock market and has been widely followed since 1928.

The DJIA is a price weighted index where each constituent makes up afraction of the Index based on its price, with stocks that have a higher price making up a higher proportion of the index. For example a stock that trades at $100 will have 10 times the proportion in the index than a stock trading at $10.

The current stocks and weightings in the DJIA are as follows. Stock % Weight in Index 1 IBM 9.37 2 ExxonMobil 6.29 3 Chevron 6.02 4 3M 5.25 5 McDonalds 5.15 6 Johnson & Johnson 4.96 7 United Technologies 4.8 8 Procter & Gamble 4.48 9 Coca-Cola 4.32 10 Boeing 4.29 11 Wal Mart 4.26 12 Travelers 3.72 13 Hewlett Packard 3.39 14 JPMorgan Chase 3.1 15 Caterpillar 2.98 16 Verizon Communications 2.62 17 Merck 2.29 18 Kraft Foods 2.25 19 Dupont 2.21 20 American Express 2.18 21 Microsoft 2.13 22 AT&T 2.13 23 Disney 2.08 24 Home Depot 2.08 25 Cisco Systems 1.67 26 Intel 1.42 27 Pfizer 1.33 28 Bank of America 1.17 29 General Electric 1.07 30 Alcoa 0.97 What Makes It Move. Company Earnings. Traders monitor the earning of companies in the DOW which are normally released on a quarterly basis. There will be a consensus among analysts as to what that number will be and if the actual number is better than the analysts expected then the price should rise and if it is worse then the price should fall. The earnings for companies that make up a bigger percentage of the DOW will have a bigger effect on the movement of the DOW and should be watched closely. NEWS All day long traders are glued to their news screens watching for stories that may impact the market. The news that will move the DOW can vary from company specific news to global news stories and traders are looking for any news that will cause investors to enter or exit the market . It is essential to have access to live news as often financial markets will have already moved by the time most people read the story in the paper. Through Getdealings twitter market commentary we bring you the live news stories and rumours the professionals are discussing right now. Interest Rates. DOW traders will keep their eyes open for any potential change in Interest rates as this will have an effect on stock market valuations. The general rule is that lower interest rates are good news for the DOW as not only do the companies in the DOW have lower debt payments( making them potentially more profitable) the returns the FTSE could offer look more attractive compared to the lower interest rate you will get from bonds.About the Author:

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