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This manual has been developed with a
specific goal. To teach our members how to produce profits trading the
Dow, on a consistent
week-by-week basis. This is what we ourselves do for a living. The Dow
Jones is by far the supreme, most followed index in the world. It is a
powerful benchmark for global markets, and influences much of the
buying/selling of stocks in the developed [and developing] exchanges
worldwide.
It could be said that the Dow is a primary index, where [arguably] all other indexes are secondary, and take their cue from the Dow. There is a saying the UK… “When the Dow sneezes, the FTSE [the main UK stock index] catches a cold”. This is akin to the truth. In fact it is the very reason why we ultimately decided to focus on and trade only the Dow Jones Index and nothing else.
What we actually do is very simple – and
that is to focus on and trade the Dow Jones index. Over the course of
this very straightforward, jargon-free, to the point, manual, we will
teach you step-by-step how we analyze the 30 stocks that make up the Dow
Jones index, and then use the resulting analysis to make consistently
profitable trading decisions week by week – trading the Dow itself…
Don’t worry about any complex math or hours
of analysis you think you might have to do [you won’t] – all of the work
is done by our computer on a daily basis, which provides the simple
trading results and entry/exit signals. You simply log in to our
password protected website and all the information you need is right
there.
Remember, because we openly publish our position in the market, our
performance is absolute and transparent. Since inception in January
2006, we have recorded and published every single one of our signals -
both winners and losers - no exceptions, on our home page at
dowtrader.net - no other system dares to do this, and if they do - to
our knowledge - nothing comes close. This is a fact for the record.
Our system is straight to the point as is this manual. Our own approach to trading is absolute, and objective. We do not waste time and do not entertain people who waste our time. You will find our service is extremely easy to follow and it works. Like every business you will encounter the very occasional slip-trade but the vast, overwhelming majority of trades are winners, and over the course of the year our results speak for themselves. we put ourselves on the line, and publish all our trades.
So, let’s get started...
If you already know what the Dow Jones index is, I would recommend you skip the next bit, as it discusses mainly what the Dow is, how it is constructed, where it is used, etc. It is not necessary information to make profitable trades, but provides a background to how the Dow was originally developed and how it is constructed, to provide a kind of ‘measure’ of the market as a whole. If you are new to all of this, it may be of interest for you to read this section to the end.
The Dow Jones Index: How It Is Constructed...
The Dow Jones was created to measure the
stock market performance as a whole. It was important for the media, and
investors to have some kind of ‘gauge’, which provided a quick viewpoint
of the ‘general’ direction of the entire stock market…
In order to construct this ‘index’,
originally only 12 companies were included in the calculation. Today,
30 companies make up the Dow Jones Index…
The calculation process is actually relatively simple...
Each of the 30 companies is given a
‘weighting’ based on the stock price. Each of these 30 companies is
given a different weighting [see table below]. For example assume
Microsoft is given a weighting of 3%. Assume also that Microsoft stock
price is $30. If the Dow Jones is currently at 10,000 points, and
Microsoft moves up from $30 to $32, then, provided the other 29
companies stay exactly the same, then the Dow Jones moves up from 10,000
to 10,020. How did we work this out?…
Let’s break it down… Microsoft represents 3% of the Dow. So if the Dow is at 10,000, then 3% = 300 points. If Microsoft was weighted at 4% instead of 3%, this would mean Microsoft = 400 points in the Dow [when the Dow is at 10,000]. If Microsoft was weighted at 4.5% instead of 3%, then this would mean Microsoft = 450 points in the Dow. Simple enough...
Now, because Microsoft represents [in our
example] 3% of the Dow Jones Index, or 300 points, then for every %
move in the Microsoft price [up or down], this is reflected in the 300
points in the Dow. In our example, Microsoft moved from $30 a share
to $32 a share. This 6.666% move in the stock translates to a 6.666%
move in the ‘300 point’ portion of the Dow, which makes up Microsoft…
In other words, 300 x 6.666% = 20 points.
So, the Dow moved from 10000 to 10020, when Microsoft moved from $30 to
$32. You may need to read these last few paragraphs a couple of times to
make complete sense. Fear not - it becomes clear.
However, as I said, it is not really necessary to learn how the Dow is constructed. This is just to give you some idea of what the Dow is, and how it works. Also note that our example assumes that the other 29 stocks do not move, and stay the same when the Dow moves up from 10000 to 10020 on account of only Microsoft moving $2. In reality, all 30 stocks are constantly moving up and down throughout any given trading day...
The Dow moves whenever any stock moves,
depending on it’s weighting – eg., if Home Depot stock represented 2% of
the Dow when it is at 10000, then 200 points in the Dow would be
apportioned to Home Depot. And so on and so forth.
The below table provides the 30 stocks which
make up the Dow Jones Index, and the weightings [naturally the sum of
all the weightings add up to 100%]. This should now make better sense to
you…
United Technologies [ticker: UTX]
Weighting = 6.5%
3M Company [ticker: MMM] Weighting = 6.3%
International Business Machines
[ticker: IBM] Weighting = 6.1%
Caterpillar [ticker: CAT] Weighting =
5.7%
American International Group [ticker: AIG]
Weighting = 5.1%
Johnson & Johnson [ticker: JNJ] Weighting
= 4.0%
Procter & Gamble [ticker: PG] Weighting =
3.9%
Wal-Mart Stores [ticker: WMT] Weighting =
3.8%
Coca-Cola [ticker: KO] Weighting = 3.7%
Boeing [ticker: BA] Weighting = 3.6%
American Express [ticker: AXP] Weighting
= 3.6%
Altria Group [ticker: MO] Weighting =
3.5%
Merck & Co. [ticker: MRK] Weighting =
3.3%
Citigroup [ticker: C] Weighting = 3.3%
Exxon Mobil [ticker: XOM] Weighting =
3.2%
General Motors [ticker: GM] Weighting =
3.2%
E.I. DuPont de Nemours [ticker: DD]
Weighting = 3.1%
J.P. Morgan Chase [ticker: JPM] Weighting
= 2.7%
Honeywell International [ticker: HON]
Weighting = 2.6%
Verizon Communications [ticker: VZ]
Weighting = 2.6%
Home Depot [ticker: HD] Weighting = 2.5%
Pfizer [ticker: PFE] Weighting = 2.5%
General Electric [ticker: GE] Weighting =
2.4%
Alcoa [ticker: AA] Weighting = 2.3%
Microsoft [ticker: MSFT] Weighting = 2.0%
McDonald's [ticker: MCD] Weighting = 1.9%
Intel [ticker: INTC] Weighting = 1.9%
Walt Disney
[ticker: DIS] Weighting = 1.7%
SBC Communications [ticker: SBC]
Weighting = 1.7%
Hewlett-Packard [ticker: HPQ] Weighting =
1.5%
Remember, each of these stocks move
throughout the day. Whenever the stock moves [up or down] the Dow Jones
also moves, depending on the relative weighting. Here’s another quick
example, so all of this becomes even more clearer…
You can see Johnson & Johnson stock above,
weighted at 4.0%. Imagine the Dow to be at 9000 points today. The other
29 companies stay the same, but J&J moves up from $52 a share to $53.50.
Let’s work it out: The Dow is at 9000, so 4% of 9000 = 360 points. This
is the
‘portion’ of the entire Dow Jones reflecting J&J. The stock moved
from $52 to $53.50, ie., 2.884% move. We now have all the figures we
need to quickly work out the Dow move… all you do is multiply 360 points
x 2.884% = 10.38. The Dow will therefore become: 9000 + 10.38 = 9010.38.
Does that make sense?
Okay - let’s move on...
While the calculation of the Dow is
interesting, it is not important to learn it. What is important, we
begin to cover in the remainder of this manual, starting with the fact
that the Dow Jones index, just like any stock, or commodity, can
be traded…
Yes, in other words, you can make profits from the ‘point’ movements in the Dow. If you are expecting the Dow to move up say, 100 points in the next week, then you can buy the Dow [or Dow future, or a number of other instruments you will learn about in due course] and make [for example] $10 for every point the Dow moves in your favor. So, if you are right about the 100 point move, you can make a $1,000 profit.
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