When it comes to stock market trading, a lot of people look to the Dow Jones before making a decision. While the Dow may have little to do with the actual stock you are investing in, it can be a good indicator of how the U.S. economy is doing as a whole.
The Dow Jones Index, which currently tracks the 30 biggest companies in the U.S., is often reported on by both investors and the mainstream media.
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Understanding What the Dow Jones Is
The Dow Jones is an index that calculates the value of some of the largest corporations in the United States. In the past, the Dow Jones mostly tracked companies that dealt with industrial goods, such as American Tobacco and U.S. Leather. Today, the index tracks major players in the U.S. economy, such as Apple, Microsoft, McDonald’s, and Coca-Cola. These companies don’t change frequently and most of them are tracked by the index for years.
Like other index funds, the Dow adds together the stock prices of the companies it tracks. It then divides them to calculate a price. The formula used will account for sudden changes in stock prices and other factors, such as stock splits. The Dow Jones Index price will fluctuate depending on the overall value of these stocks. When companies perform well, the price goes up.
How to Tell When the Dow Jones Will Go Up or Down
Unlike individual stocks, the Dow Jones doesn’t have a lot of sudden movements unless something major happens to the economy. When one company doesn’t perform well, you will see a small dip in the Dow Jones. Paying close attention to all of the companies listed in the index is the only way to predict the movement. Reading more news on todays Dow Jones is a good way to stay alert.
Another method is to research the U.S. economy as a whole and look for factors that could have major impacts on the companies in the index. For example, if there is a shortage of plastic or glass, will it affect the tech companies on the index? Major news about U.S. trades with foreign countries can also have an impact on the overall value of the Dow Jones.
Like with any other index or stock investment, technical analysis is the key to success. While it is difficult to create a chart to accurately predict the way the index is moving, you can still look for some patterns to determine the immediate future of the index. Remember, there are more factors that can affect the price of an index!
Can You Invest in Index Funds?
While some people use the Dow Jones as a way to see how the economy is doing, you don’t have to use it that way. Some people choose to invest in the index directly rather than in the individual companies that make up the Dow.
There are several ways to invest in an index fund. Before you invest your hard-earned money, do some due diligence and find the most efficient method available.