For those of us that have followed the major indices over the last several years, we know that the Dow Jones Industrial Average has been climbing steadily. Over the last five years, its price has climbed by 60 percent. This certainly beats the market average that has been established since the end of the Depression of 3 percent per year, per annum.
The more observant traders realize that this absurd rate of growth is slowing, though. In the last 12 months, in fact, the Dow is up only 6 points total, less than 0.1 percent. In other words, growth in this index has been practically nonexistent. The chart over the last 12 months has been all over the place, but in the end, the actual amount of change is tiny. For an index that ranges up near 18,000 points, 6 is a tiny number, almost meaningless.
This revelation presents a very interesting dilemma. What are traders supposed to do? For investors focused on long term growth, this is an inconvenience, but not necessarily a problem. For traders, it’s a nightmare. It has made trading one of the world’s most quoted indices at a profit almost impossible. There is a lot of volatility, and on a daily basis, it’s very hard to know exactly what will happen. Investors can have a strong assurance that the Dow will go back up since that’s what it’s always done, but for those trying to make money in the short term, it can be a confusing process.
Relying on technical indicators is a good start, but they can only go so far. You need to take into account the fact that past results are not necessarily indicative of the future. When there is some sort of major announcement every other day, this can have a bigger influence on short term results than the indicators that we’ve relied on for so long. A balance of these two things is needed if you are going to better your chances of making a profit. This goes for any kind of trading, whether it be stock and ETF trading, binary options, or traditional options. You can’t be successful without looking at the big picture.
What does this mean for your trading? One, you need to expand your outlook. Become a student of your assets of choice. If you are focusing on the major indices, like the Dow, the S&P 500, and the NASDAQ, then not only should you look at their technical indicators, but you should also be familiar with their fundamentals and the fundamentals of the major companies that comprise them. So, if you are looking at the Dow, as discussed above, then you should have a firm understanding of what influences the prices of big companies like Apple, Coca Cola, Cisco, Disney, Wal Mart, and Visa. These are just a handful of the 30 companies that comprise the Dow Jones, and a major development in one or more of these companies does have the potential to influence the value of the Dow. This goes for both fundamental and technical indicators, as well as sentimental influences such as trader confidence and major news stories. If you’re going to trade indices, looking at just a few things is not enough if you want to be accurate. You need a complete outlook. Even if you are focusing on ultra short term trades like 60 second binary options, this will pertain to you.
What it comes down to is that you want to improve the accuracy of the trades that you do make. If this means making fewer trades per week, so be it. If you go from 100 trades per week to 50, but you are doing so with 50 percent more accuracy, then you will still end up making more money.