Dow Jones: the complete guide
Published: March 10, 2021 by Andrew
The Dow Jones indicate a series of stock market indices, created by Charles Dow at the end of the 19th century. These are the oldest stock market indices, which have long been among the most loved by investors interested in the American market.
The landscape of the Dow Jones Indices has changed radically over time but still remains particularly interesting stocks on which to focus your investments. Like all stock market indices, it is a basket of securities whose price follows that of the companies whose shares are represented by the index itself.
For investors, this translates into a stock that at the same time is characterized by low volatility, excellent diversification and which allows, most of the time, to obtain a faithful portrait of the financial and economic situation of a stock exchange in particular.
In the case of the Dow Jones, the reference stock exchange is the NYSE, New York Stock Exchange, where the NASDAQ is also listed.
In this guide on the Dow Jones we will see:
- What is it
- The best strategy to invest
- The most convenient platforms to invest
Once we have clarified why it is convenient to invest, in fact, we will also explain the tools to do it. The main one? A good online investment broker like ForexTB (click here to discover its free investment guide on Dow Jones and other financial assets).
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Min. Deposit: 100€
Min. Deposit: 250€
Dow Jones: what is it
The first Dow Jones Index was born in 1882 from the idea of Charles Dow, founder of the Wall Street Journal and father of contemporary technical analysis, to provide investors with a single stock to track the ups and downs of a market.
In this way, investors did not have to make an average of the market trend themselves and they also had a stock that faithfully represented it.
The first Dow Jones index was the Dow Jones Transportation Average, of 1882, followed in 1885 by the Dow Jones Industrial Average, still today among the largest stock market indices in the world.
Designed to complement Dow’s theory of technical analysis, the Dow Jones, although no longer considered the most reliable indices to monitor the situation of the American markets, continue to be objects of great interest.
Dow Jones today: S&P Dow Jones Indices
In 2011, the S&P Dow Jones Indices joint venture, or the temporary association, of S&P Global, CME Group and News Corp, of which the Dow Jones Company is a part, was announced.
The joint venture was then launched in 2012 and brings together a large number of indices and financial products.
Among the main stock indices owned by the S&P Dow Jones Indices today are the S&P 500, the Dow Jones Industrial Average and the Dow Jones Transportation Average.
In addition to the traditional indices, the joint venture also puts in place some of the most modern solutions, such as the Sustainability Indices, or stock market indices that collect the shares of companies engaged in social and environmental sustainability operations and in projects of economic requalification of some areas. .
Also comprising one of the largest financial rating companies in the world, it is a joint venture that is recognized as one of the cornerstones of investments and financial markets in the US economy.
Investing in the Dow Jones: the best platforms
Investing in the Dow Jones indices is an activity that many are dedicated to. The advantages of investments in stock market indices, in fact, with low volatility and high differentiation, have been further amplified with the introduction of CFDs.
CFDs (Contracts For Difference) are derivative financial instruments, immediately dependent on the security they represent, and which allow you to significantly lower the entry threshold in a market.
The Indices, like all the other financial markets, in fact, have a threshold of several hundred thousand euros.
Without such a figure, investing directly is impossible and that is why investments in CFDs are becoming increasingly popular.
These become available thanks to specific platforms, the brokers, which allow you to carry out all online investment operations, thanks to the site and the associated app.
In this way, the operations to qualify one’s capital are made accessible to practically everyone, even to those who know practically nothing about finance and investments.
Precisely for this reason we at OnlineTradingCourse.net strongly recommend that you refer to these three platforms, the best both for offer and for training materials made available to users.
They are also ideal for trading on other stock indices such as the CAC40, the Nikkei, the FTSE 100 and many others.
eToro: the social trading
eToro is a decidedly revolutionary platform, so we defined it at the beginning by analyzing the offer and this has proved to be over the years.
World leader in Social Trading, eToro offers an alternative solution to the long waiting times deriving from a training course.
Starting to learn the basics of online investments, in fact, can take from 4 to 6 months and in the meantime it is wise not to invest real money but to practice exclusively with the Demo Account.
This is a gestation period that prevents users from subsequently losing all their capital.
Well, with Social Trading this waiting time is completely canceled.
Meanwhile, the basics of how financial markets work are being learned. In fact, with eToro it is possible to invest your money at the same time by copying the operations carried out by the many professionals who operate on the platform.
Copy Trading, in fact, offers users a wide range of professionals who have distinguished themselves over time for a high rate of efficient operations. With a few clicks you can copy their operations and record profits similar to theirs and proportional to the amount of capital invested.
Register on eToro and take advantage of Copy trading. You can start investing with as little as $ 200.
Trade.com: a new reality
Trade.com is a reality that is making a lot of talk about itself in recent times. Despite being a young company, the offer it puts in place has already convinced hundreds of thousands of users thanks to innovative solutions.
In particular, the adoption of the WebTrader platform to invest online, streamlined and efficient, allows you to interact with tools, analyzes and charts in an immediate and intuitive manner. WebTrader allows you to view the stocks of a specific sector or market, the trades you have opened, the chart of a particular stock and advanced reading tools in a single screen.
A whole, this, which will make it particularly easy to carry out a good technical analysis.
Furthermore, which surprised us positively, WebTrader allows you to invest in IPOs, or in the market of companies that have not yet seen full entry into the stock markets but which, such as Spotify, are still in the “pre-sale” phase. .
Try to invest on Trade.com and open a real account with only 100 euros
ForexTB: for who wants to learn
ForexTB is universally recognized as the default platform for anyone interested in going through all the important stages of the training path, from the basics to the professional ones.
The broker, in fact, puts in place one of the most complete trading guides the market has ever seen, a manual whose market value has been valued around 3000 dollars (download the free guide here).
Nonetheless, ForexTB allows anyone who registers to download it for free and enjoy an excellent Demo Account to experience what they are learning in parallel.
With the Demo Account, in fact, you have a trading simulation available that follows the real market movements in all respects without the user being forced to invest real money to carry out the operations.
In addition to this, ForexTB offers a trading signals service, always free, produced by Faunus Analytics, one of the best financial analysis companies in the world. The trading signals are ready-made analyzes on the most interesting stocks of the moment that are communicated in real time via SMS, e-mail or chat.
Try investing with ForexTB signals and guidance and open a demo or real account with only 250 euros here.
On ForexTB, many other indices are available in addition to the NASDAQ, all of which are very profitable for market operations (for example, the AEX, the IBEX, the SMI, the Hang Seng are present)
Dow Jones: the main indices
Among the many indices owned by the Dow Jones Company, the largest are three, to which is added the Dow Jones Composite Average which simply includes them all.
Dow Jones Industrial Average
It is a price weighted index, that is, elaborated on the basis of the prices of the shares of the 30 major companies listed on the NYSE.
It is calculated neither on the basis of capitalization nor on the weighted arithmetic average, but on the sum of the share prices of each company.
Divided by a factor that changes at the main fiscal deadlines, despite being one of the oldest indices. It is no longer considered a likely indicator of the situation on the American financial markets.
Furthermore, the old reference to the industrial sector has long since been outdated and has pure symbolic value, as of the 30 companies in the index they have almost nothing to do with the industrial sector.
The top 10 companies on the Dow Jones Industrial Average are also known as the Dogs of the Dow.
Dow Jones Transportation Average
Like the Industrial Average, the Transportation Average is also a price weighted index, developed on the basis of the prices of the 20 major companies in the American transport sector.
At the beginning, in 1882, it included just 11 transport companies, 9 rail, one naval and one land transport. Finally, with the creation of the air transport sector, the index stopped at 20 total companies.
The Dow Jones Transportation Average is still considered a reliable estimate of the performance of the US transportation sector and it is rare for the composition of the index to change. Suffice it to say that from 2011 to 2015 just 4 companies were changed in total:
- Alaska Air Group replaced AMR Corporation in 2011 following the bankruptcy of the latter;
- Kirby Corp. replaced in 2012 Overseas Shipholding Group Inc .;
- Avis Budget Group Inc. replaced GATX Corporation in 2014;
- American Airlines Group was included, in 2015, in place of Con-way;
Dow Jones Utility Average
This is the most recent of the Dow Jones Company’s large indices, created in 1929 when the utilities sector broke away from the Dow Jones Industrial Average. It is a price weighted index calculated on the basis of the prices of the 15 major American utility companies listed on the NYSE.
Most of the companies listed in the Index dealing with the supply of water and electricity on American soil are the least subject to change, with just two company changes in the span of ten years:
- The William Companies replaced by American Water Works in 2014;
- Sempra Energy which replaced PG&E Corporation in 2019.
Dow Jones in real time
Let’s take a look at the real-time trend graph of the Dow Jones Industrial Average (DOW30), which shows the recent performance of the 30 American Blue Chip companies listed on the NYSE and NASDAQ.
Dow Jones: the components
Starting from the assumption that the companies listed within the DJIA can be included and delisted according to their performance, let’s see which are the currently most capitalized companies belonging to the index.
In the last century, the composition has changed almost 60 times, with the first revolution following the black crisis of 1929. The companies currently listed in the index are:
- Intel Corp.
- Apple Inc.
- Boeing Co.
- Microsoft Corp.
- Home Depot Inc.
- Salesforce.com Inc.
- Nike Inc. Cl B
- Cisco Systems Inc.
- Walmart Inc.
- Amgen Inc.
- UnitedHealth Group Inc.
- Johnson & Johnson
- Visa Inc. Cl A
- Merck & Co. Inc.
- Walgreens Boots Alliance Inc.
- Honeywell International Inc.
- Chevron Corp.
- McDonald’s Corp.
- International Business Machines Corp.
- Travelers Cos. Inc.
- JPMorgan Chase & Co.
- Procter & Gamble Co.
- Verizon Communications Inc.
- Goldman Sachs Group Inc.
- 3M Co.
- Coca-Cola Co.
- Dow Inc.
- Caterpillar Inc.
- American Express Co.
- Walt Disney Co.
If you are a trader who loves doing Value Investing, within this index you will surely find the companies that are right for you.
Strategies for Dow Jones Indices: the Dow’s theory
Although Charles Dow was the creator of it, the Dow Theory did not see a complete form until after his death. Rearranging the numerous writings Charles Dow published in the Wall Street Journal, W.P. Hamilton, R. Rhea and E.G. Schaefer gave the Dow Theory the form we know today.
This is a form of technical analysis that is particularly suitable when considering the S&P Dow Jones Indices. Starting from the consideration of share price changes and integrating them with sector rotation elements, the theory is summarized in six laws:
First law: the markets have 3 movements
Three crucial moments of the market are identified:
- Primary or main movement; which can last from just under a year up to several years, and which can be either bullish (bullish in technical terms) or bearish (bearish);
- Average swing; which can last from three months up to a decade, and retraces the price of the stock from the last phase by a percentage ranging from 33% to 66%;
- Short swing, which can last for hours or months, which sees a momentary correction opposite to the main movement;
Second law: the trends have 3 phases
According to the Dow Theory, market trends have three basic phases:
- Accumulation phase, where investors operate on the stock contrary to the overall opinion of the market. At this stage, the price does not grow much as the demand for shares is lower than the number of shares released by the market;
- Absorption phase, where the most technically prepared investors or trend scholars notice the stock. In this phase we are witnessing a particularly strong speculation;
- Distribution phase, phase in which investors begin to place their holdings on the market;
Third law: the market reacts to any information
The market reacts promptly to information reaching it from the world. Adjusting the prices on the basis of the same, in line with what is stated by the efficient-market hypothesis (EMH);
Fourth law: the market averages confirm each other
This law is especially useful if you decide to invest in all the indices created by Charles Dow. Although today it does not maintain the same validity as it once did, it allowed investors to use indices to effectively probe the American market;
Fifth law: trends are confirmed by volumes
This is a particularly useful law when applied to particular trading indicators such as Moving Averages and CCI. In fact, Dow believed that price movements were closely related to changes in volumes.
In particular, Charles Dow had hypothesized that if the changes in prices were accompanied by large volumes then it was clear that the current trend was the dominant one.
For this reason, investors should have expected its continuation and development as long as the level of volumes remained constant.
Sixth law: trends persist as long as there are no signs indicating their end
Charles Dow was a fervent advocate of market trend analysis.
Unless there were clear signs of the end of a trend, traceable on the basis of previous laws, the price trend of a stock would have remained constant overall regardless of the momentary corrective fluctuations.
Read also: Make money on the stock market
In conclusion, we can say that a study of the Dow Jones Company Stock Market Indices means retracing the entire history of modern finance together with them. Starting with Charles Dow up to all the analysts who in history have focused on his indices.
Nowadays, the Dow Jones is a solid stock, which has lost a good part of its significance in the macro-financial field (ie it is no longer useful for understanding the general trend of the US market), but which still represents an excellent investment.
As our readers know, the platforms that we recommend from time to time are those optimized for the type of investment dealt with, which is why, today, no broker better than Trade.com, ForexTB and eToro, is suitable for preparing the user to invest in a stock with a centuries-old history such as the Dow Jones Stock Exchange Indices.
It is an index (or rather, a series of indices) of shares listed on the US Stock Exchange.
It can be said that the Dow Jones, together with the Nasdaq, is the most important index in the world by capitalization.
Dow Jones Industrial Average, Dow Jones Transportation Average, Dow Jones Utility Average
Probably eToro because it is free and allows you to automatically copy what the best traders in the world do.