http://profitabletradingtips.com/trading-investing/success-in-trading-stock-indexes -
Success in Trading Stock Indexes -
Success in trading stock indexes depends upon choice of index, fundamental analysis of the market sector or economy that the index represents and attention to market sentiment. Here is a brief overview of the business of trading stock indexes. Our goal is to help the trader devise a trading system that leads to success in trading stock indexes and helps avoid simply trying to outguess the market.
What the Stock Index Contains
There are a wide variety of stock indexes. There are stock indexes that include stocks from all parts of the world or selected parts of the world, and there are stock indexes that include only stocks from a given nation. Stock indexes such as the Standard and Poor’s 500, the Nikkei 225, the RTSI, the SENSEX, and the FTSE 100, represent large cap companies in the USA, Japan, Russia, India, and the United Kingdom, respectively. There are stock indexes that represent individual sectors of the stock market. For example, The Morgan Stanley Biotech Index represents thirty-six US stocks in the biotech sector while the Wilshire US REIT index represents more than eighty REIT’s or real estate investment trusts. If you are trading the Russell 2000 you are trading an index that represents the bottom two thousand stocks in the Russell 3000 index. These are mid and small cap stocks with market caps of usually no more than a billion and a half dollars.
What Drives the Constituents of the Stock Index
To a degree all stock indexes are driven by the economy. However, large indexes such as the Standard and Poor’s 500, the Nikkei 225, the RTSI, the SENSEX, and the FTSE 100 typically rise as fall with the national or global economy. If you are trading the SPY, the SPDR exchange traded fund that tracks the Standard and Poor’s 500 you will expect to see a rise in the index when news from Europe implies a resolution of the debt dilemma or when US employment figures are improving. You will expect to see a fall in the S&P 500 and the SPY when trade figures for the USA show increasing red ink or when congress is unable, again, to deal with an extension of the US debt ceiling. Many traders who follow events in Europe, for example, find as much success in trading stock indexes as in trading the Euro.
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3. Success in trading stock indexes depends upon
choice of index, fundamental analysis of the market
sector or economy that the index represents and
attention to market sentiment.
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4. Here is a brief overview of the business of trading
stock indexes.
Our goal is to help the trader devise a trading
system that leads to success in trading stock indexes
and helps avoid simply trying to outguess the
market.
www.ProfitableTradingTips.com
5. What the Stock Index Contains
There are a wide variety of stock indexes.
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6. There are stock indexes that include stocks from all
parts of the world or selected parts of the world,
and there are stock indexes that include only stocks
from a given nation.
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7. Stock indexes such as the Standard and Poor’s 500,
the Nikkei 225, the RTSI, the SENSEX, and the FTSE
100, represent large cap companies in the USA,
Japan, Russia, India, and the United Kingdom,
respectively.
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8. There are stock indexes that represent individual
sectors of the stock market. For example, The
Morgan Stanley Biotech Index represents thirty-six
US stocks in the biotech sector while the Wilshire US
REIT index represents more than eighty REIT’s or
real estate investment trusts.
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9. If you are trading the Russell 2000 you are trading
an index that represents the bottom two thousand
stocks in the Russell 3000 index.
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10. These are mid and small cap stocks with market
caps of usually no more than a billion and a half
dollars.
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11. What Drives the Constituents of the Stock Index
To a degree all stock indexes are driven by the
economy.
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12. However, large indexes such as the Standard and
Poor’s 500, the Nikkei 225, the RTSI, the SENSEX,
and the FTSE 100 typically rise as fall with the
national or global economy.
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13. If you are trading the SPY, the SPDR exchange traded
fund that tracks the Standard and Poor’s 500, you
will expect to see a rise in the index when news
from Europe implies a resolution of the debt
dilemma or when US employment figures are
improving.
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14. You will expect to see a fall in the S&P 500 and the
SPY when trade figures for the USA show increasing
red ink or when congress is unable, again, to deal
with an extension of the US debt ceiling.
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15. Many traders who follow events in Europe, for
example, find as much success in trading stock
indexes as in trading the Euro.
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16. When to Buy and When to Sell a Stock Index
Success in trading stock indexes depends upon a
clear view of the fundamentals of nation or market
sector represented by the individual stock index.
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17. Success in trading stock indexes also depends upon
accurate and up to date technical analysis of
emerging market sentiment.
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18. How to Trade a Stock Index
Traders keep an eye on general economic indicators
and/or factors that drive a given market sector in
order to obtain success in trading stock indexes.
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19. In addition, traders follow the big companies in any
given sector. These indexes are representative of a
basket of stocks.
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20. The index tracks the collective movement of stocks
in the index and is a means of diversification.
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21. However, if one really large cap stock like Exxon
Mobil or Chevron takes a big hit the index will adjust
accordingly and rapidly.
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22. Having a clear idea about just what is happening to
the individual components of the index is a clear
path to success in trading stock indexes.
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23. Options trading often focuses on stock indexes. How
to profit from stock option trades of indexes is
commonly to follow market sentiment with
technical analysis tools and scalp profits from
incremental moves in the market.
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24. With options trading one reduces investment risk
down to the price of an options contract and enjoys
a degree of leverage, depending upon contact price.
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25. For more insights and useful information regarding
stock, options, commodities, and futures trading
visit www.ProfitableTradingTips.com.
