ForeCastle

The Dow Jones Industrial Average is the second-oldest stock index in existence, started in May of 1896 by Charles Dow and Edward Jones. Dow was an editor at the Wall Street Journal at the time, and his associate Edward Jones was a statistician looking for a simpler method of tracking market performance. The duo had created the Dow Jones Transportation Index in 1886 largely based around railroads, but as the US economy was becoming more industrialized they sought out a better way to gauge overall market performance and designed the Dow Jones Industrial Average around 30 industrial stocks. In the years since, the composition of the index has changed and that industrial connotation no longer applies as the index contains tech companies like Apple, IBM and Intel along with pharmaceutical companies like Merck and Pfizer.



As a result of the Dow Jones Industrial Average tracking 30 of the largest, most established companies in the US economy, the index remains attractive for those looking to focus on larger blue chip stocks. This can be attractive when trends display themselves across an asset class, such as we've seen over the past nine years in stocks out of the United States since the Global Financial Collapse. This can help traders glean a bias in a market, so that shorter-term day trading strategies can be focused in the direction of the prevailing trend.

One common way that traders measure or grade trends is with the 200 Day Moving Average. This is simply a 200-period moving average applied to the Daily chart, and when prices are above this level, traders can look at bullish strategies on shorter-term trading setups. Conversely, when prices cross-below this level, traders can then begin to look at bearish strategies under the expectation that prices may continue-lower.

As a general rule, traders should look to cut their losses short while letting their winners run, and this remains the case whether it's a longer-term strategy, or a shorter-term day trading approach.

more...