Dow Jones Index - what is it? Dow Jones index chart online.
(DJIA) is one of the most authoritative stock indices in the world. Introduced 120 years ago, in 1896, Dow Jones evaluated only the American transportation sector. Today, along with the S&P, it is a measure of the value of the whole world and is traded on (New York Stock Exchange, NYSE).
The capitalization of 30 participating companies exceeds 5 trillion. US dollars and continues to grow.
All structures are the largest in the world, and the impact they have on financial processes, is difficult to overestimate. This is Apple, Boeing, Coca-Cola, Intel, MacDonald's, Microsoft, American Express, DuPont other. There was no place even for a titan in the company - Google.
It is the oldest and most referenced index. It is calculated by adding the closing prices of all its constituent shares and dividing the resulting amount by a divisor, which is calculated in a certain way. Like all the other indices we're talking about here, the Dow is expressed in points (not dollars).
Dow Jones Chart Online - Price Today and All Time
Composition and Companies of the Dow Jones Index
The list of corporations included in the Dow Jones index varies depending on the results of trading on stock exchange. The formation of 30 companies most important for the United States market is handled by Wall Street Journal» .
At the moment it looks like this:
- 3M Co. (Industry)
- american express co. (Finance and lending)
- AT&T(Communications and Communications), Owned by Apple since March 18
- Boeing Co.(Aircraft)
- Caterpillar Inc.. (Cleaning and construction equipment)
- Cisco Systems(Communication and communications)
- Chevron Corp.
- coca-cola co.(Food)
- E.I.duPontdeNemours&Co.(Chemical industry)
- Exxon Mobil Corp.. (Production and processing of hydrocarbons)
- General Electric Co.. (Industry)
- The Goldman Sachs Group, Inc.. (Finance and lending)
- Home Depot Inc.. (Building materials)
- Intel Corporation. (Production of semiconductors)
- International Business Machine Corp.. (Computer technology)
- JPMorgan Chase and Co. (Finance and lending)
- Johnson&Johnson Inc.. (Chemical industry)
- McDonald's Corp. (Food)
- Merck&Co., Inc.. (The medicine)
- Microsoft Corporation. (Software production)
- Nike Inc.. (Sporting goods)
- Pfizer Inc.. (The medicine)
- Procter&Gamble Co.. (Chemical industry)
- Travelers(Finance and lending)
- United Health Group Inc.(The medicine)
- United Technologies Corp.. (Industry)
- Verizon Communication(Communication and communications)
- Visa Inc..(Finance and lending)
- WalMart Stores, Inc.. (Retailer)
- Walt Disney Co.. (Media)
Index history
Index Dow Jones it can be said "dinosaur" among the modern stock market indices of the United States. It was born with a clear task: to track and visually reflect the dynamics of the industrial sector of the American stock exchange.
The concept was invented by the editor-in-chief wall street Journal and economic observers Edward Jones and Charles Dow. The indicator was not comprehensive and assessed only transport infrastructure USA - 9 railways and 2 industrial enterprises. The first name was " Dow Jones Transportation Average» - Dow Jones transport value.
In 1884, when Charles Dow began writing an economics column for the Wall Street Journal, the index was defined as 50 basis points. After a series of economic crises that occurred in the US every 7-10 years, transport companies dropped out, and the index was renamed "" (Dow Jones Industrial Index - DJIA or Dow 30).
Presentation Dow Jones with the familiar prefix " industrial”(Industrial Average) occurred on May 26, 1896. Now it reflected the arithmetic mean of the securities prices of 12 most important US corporations. To date, only one of these issuers has survived in the ranks of DJI: General Electric(it was excluded from the index from September 1898 to April 1899 and from April 1901 to November 1907).
- The first blow fell on 1896, when the quote fell to 28.48 basis points. The beginning of the first world war, 1914, the Dow Jones met at around 103 points, although due to the crises of 1901 and 1907, it dropped to 50 marks. The economic recovery of the 1920s led to a change in the structure: the number of participants reached 30. The quote, thanks to speculators, exceeded 381 points.
- Into the great depression the index began to decline. By 1932, it barely exceeded 42 basis points, while by the mid-1950s it had crossed the mark of 216 points. Everything affected the growth, and the decolonization of European possessions, and numerous fighting around the world, so in 1951 and 1957 the US government had to carry out a forced decline in the index.
- First strike of the new time fell on 1987, when the DJIA fell from 2,753 to 1,796 points, which is not surprising: in 10 years, the bulls managed to raise the quote from 838 to 2,753 points! By 1993, it exceeded 3,000 points, 1995 - 5,000 points, 1997 - 8,000 points. World economic crisis served in good stead, and by 1999 the mark of 11,000 base marks had been reached.
- The fall of the Twin Towers on September 11, 2001 dropped the index by 14.3%, and trading from 11 to 17 September was stopped. The recovery, which lasted until 2008, ended with a drop in oil prices, and the Dow Jones fell from 14,000 to 11,000 points. Until the summer of 2015, the bulls took the initiative, and the Big Dow crossed the 18,000 basis mark several times.
Dow Jones index value
How to make money on the Dow Jones
One side Dow Jones index easily lends itself to analytics, as there is a lot of news on the index. For example, many exchange participants work only with this index, making dozens of transactions per day.
But on the other hand, it is very difficult to analyze the index, since it is not always possible to keep track of everything. In addition, the price of the index is influenced not only by the companies included in it, but also by the world economy and politics.
For example , in 2015 The Dow Jones hit an intraday high of five months. And all this thanks to the news from Russia. According to the Secretary of the Security Council, Russia decided to continue to act as an intermediary between Kyiv and the South-East of Ukraine and make efforts to de-escalate the conflict.
As you can see, the news is not at all related to Coca-Cola and other companies in the index, but it affected the US economy, political stability and the Dow Jones index as an indicator of the US economy.
In order to make money on the Dow Jones index, it is important to understand that this index has become the personification of Wall Street and American economy generally.
In you need to follow the US industrial data, the most important economic indicators with a high degree of importance.
You can use forecasts in which the index is named US 30— this name of the index is quite common on some exchanges.
On the page market watch(http://www.marketwatch.com/investing/index/djia/news) you can view the most latest news concerning the index.
As you can see, technical analysis does not always help here, since the price of the index directly depends on the economic and political situation in the world. News comes out quite often and the index follows world events. Personally, I'm not sure if indicators or other tools technical analysis able to accurately predict the price. maybe I'm wrong, but it seems to me that fundamental analysis in this case will be more reliable in the long run.
Where to make money on the Dow Jones index
We preferred a broker. In order to capitalize on the index in the most profitable way, it is best to use, as they will give you a fixed profit of over 70% per trade.
You need to determine whether the price will rise or fall in specified period, for example in the next 20 minutes. Specify the term of the option, the amount of investment and indicate your forecast.
If your prediction is correct, you will receive 70-85% profit even if the price changes even by 0.001 points in the direction of your forecast.
Having opened, we indicated the asset - Dow Jones index:
The time of the end of the transaction indicated on 18:10 (in 16 minutes):
After analyzing the chart and conducting technical analysis, we invested in the growth of the index — “ UP«:
If at the time of closing the option the price of the index is higher than at the time of purchase, we will make a profit since the condition of the option will be fulfilled.
After 16 minutes, we got the result:
The chart shows how literally after the opening of the transaction, the quote on the Dow Jones crept up according to our forecast. DJA brought us $42.9 in net profit!
Dow Jones Calculation Method
The Dow Jones index takes into account the 30 largest US corporations. The name "industrial" refers more to a good tradition than to a real reflection economic indicators. At the moment, most of the issuers present in the index are not related to the industry and represent more post-industrial spheres information services and technologies.
The calculation method is simple: the total value of the 30 shares traded is divided by the floating rate, which changes regularly based on stock splits, additional income and expenses, changes in the structure of the participants' companies. Initially, the divisor was the arithmetic average of the capitalization of companies, now it is calculated using a special formula.
In this formula P is the price of the stock being traded, and d- divider. As mentioned above, it is of a floating nature, and in case of a share split or a change in the list of companies, it is updated, but the old quote is taken equal to the new one.
- The latest value of the Dow Divisor (December 24, 2015) is +0.14602128057775. Arithmetic calculations show that a $1 change in the price of 1 share gives the index approximately 6.85 basis points (1 / +0.14602128057775). This scheme causes serious complaints from economists and stock analysts around the world.
The formula, taking into account a price change of $1, does not reflect the price of a share and the share of one dollar directly in it.
For a cheap stock, this will be a serious rise, for an expensive one, a barely noticeable adjustment.
In October 2008, the shares AIG because of the "bears" they fell from 27 to 1.5 dollars, which dropped the stock index by 3,000 basis points.
And further: most expensive companies index are Goldman Sachs and 3M, the cheapest - Cisco Systems and General Electric. Considering that the price of shares of companies varies significantly, and there are different amounts of valuable papers, the first two corporations play the maximum role in the index, and the last two the minimum. The decline in their quotes will have a greater impact on the market than others.
Dow Jones Index dependencies
- too few companies participate;
- members of the index are unequal in terms of capitalization and market impact;
- the collapse of just one of 30 companies hits the entire index;
- highly dependent on oil prices and US foreign policy;
- contains only 1-2 companies from different sectors of the economy.
Benefits of the Dow Jones 30 Index
- Determines the stock quotes of the whole world;
- Shows steady growth despite the collapses;
- With a speculative nature, it reflects the real level of the economy;
- We easily predict taking into account the political situation;
- Seriously tied to oil prices.
The Dow Jones family includes several dimensions, the most important and significant of which was and remains the Dow Jones Industrial Average. Also known:
- Dow Jones Transportation Average;
- Dow Jones Utility Average;
- Dow Jones Composite Average;
- The Global Dow;
- Dow Jones Global Titans 50 Index;
- Dow Jones Total Stock Market Index;
- Dow Jones Sustainability Indexes;
- Dow Jones-UBS Commodity Indexes;
- Dow Jones Target Date Indexes.
There are no uniform rules for the inclusion or exclusion of members in the Dow 30, the decision is made by a board of stock analysts headed by the editor-in-chief of the Wall Street Journal.
There are also no selection criteria, they are based on financial results participants over the past few months. This has repeatedly caused criticism from experts, but the WSJ is one of the founders DJIA.
Working with the Dow Jones 30 is one of the key skills of any trader, both a beginner and a very successful one.
The situation in the entire financial market of the world depends on this indicator, and DOW 30 signals should not be neglected in any case.
This is a proven tool that is certainly an extremely interesting tool for tracking stock fluctuations, despite its age and outdated approach to calculating values.
Of all the tracking Dows index funds— or , the most popular is the fund Dow Diamonds(his ticker is DIA).
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The famous Dow Jones index (Dow Jones industrial index) is one of the oldest and most famous indicators of the state of the stock market; we can say that this is a "thermometer" of the American economy and one of the symbols of Wall Street.
The inventor of this indicator was Charles Dow, who on May 26, 1896 proposed to calculate the arithmetic average of the value of shares of 30 (more precisely, at the beginning of 12) of the largest and most stable industrial companies in the United States.
Dow Jones Formula
As already mentioned, Charles Dow himself calculated his indicator by dividing the sum of the prices of all shares by thirty (the number of companies). This technique has now been improved. This innovation makes a lot of sense. The most obvious disadvantage of calculating the simple calculation of the average price is that not only significant economic forces. For example, a joint-stock company may conduct a stock split by dividing the price (for the convenience of investors) by five. Then the shares of company A, which cost $500, will cost $100. Using the old algorithm, such a - largely technical - change would cause a rather large collapse of the index.
Therefore, now the calculation is carried out as follows: as before, all the values of the shares of companies included in the top thirty (American blue chips), in the second part of the formula - a special Dow divisor, calculated taking into account various factors - including the one taken above for an example of splitting. Therefore, the index is more objective.
Benefits of the Dow Index:
1. Simplicity (relative simplicity: with the advent of a special divisor, the calculation has become more difficult) and ease of calculation.
2. Long history. As already mentioned, this indicator is one of the symbols of the American stock market. By studying its dynamics, it is possible to analyze data over a wide period of time, which opens up very wide opportunities for theorists (and practitioners!)
Disadvantages of the Dow:
1. The most important thing is the lack of objectivity. Of course, the 30 largest companies (see below for which companies they are) play an important role in the American economy, but there are still a lot of other stocks traded on the stock exchange, including firms that are very slightly inferior to the leaders. Therefore, a sample of only 30 (and far from the most typical!) joint-stock companies cannot serve as an accurate model of the entire stock market. (Note: Previously, this disadvantage was not so significant, because the few largest companies played in the US economy much big role- something like now giants like or in Russia.)
2. The calculation does not take into account the capitalization of the company - only the price of its securities. Therefore, a change in the price of a company's shares from a small market value has the same impact on the index as an AO with a significantly higher value. This is not entirely correct. (True, the top 30 includes such giants that in the end the differences are not so important).
Some market participants whose share price is used in the calculation of the Dow Jones:
American Express Co.
Bank of America Corp.
Hewlett Packard Co.
Intel Corp.
McDonald's Corp.
Procter & Gamble Co.
International Business Machine Corp.
Investing in the Dow Jones Index
Dow Jones Index: what is it and how to invest in it
The expression "Dow Jones Index" is familiar even to those who are far from stock trading. It is often found in films and news reports. Last year, in May, it was 120 years since the values of this index began to be published regularly in stock reports. Especially for lazy investors, today we will analyze the Dow Jones index: what it is and how to use it in your investment portfolio.
Brief history of the index
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The full name of the index is the Dow Jones Industrial Average. It is a number derived from the stock prices of 30 major U.S. industrial companies, adjusted by multiples. Initially, the calculation was made by dividing the sum of share prices by the number of companies (in the very first version of the index, there were only 11 of them). As stocks rise in price, they are split up in order to adjust them to a certain price range. Accordingly, the divisor in the formula for calculating the index has not been equal to 30 for a long time and from time to time it is adjusted taking into account the splitting of the next share. This approach has long been criticized by experts. They argue that the weights of companies in the index are not equal.
The history of the Dow Jones index began in 1884. Then Charles Dow, editor of economic news at the Wall Street Journal, published by Dow Jones & Company, compiled the first version of the index, which included 11 railroad companies and only 2 manufacturing companies. Initially, C. Dow used this index exclusively for research purposes. The first publication of the index took place on May 26, 1896. By that time, its composition had been completely revised and included the shares of 12 manufacturing companies.
The abbreviated name of the index was DJI. Of those companies that were at that time in its composition, only one remained in the current version of the index: General Electric. From time to time, some companies drop out of the list and their place is taken by others, whose share in the relevant market becomes larger than that of the retired ones. For the first time, the number of companies in the calculation of the index reached 30 only on October 1, 1928 and has remained unchanged since then.
The very first published value of the index was 40.94. The milestone of 1000 points was first reached in 1972. On March 29, 1999, the value of 10,000 was subdued for the first time. The maximum (at the moment) Dow Jones value in the entire history was noted quite recently on March 1, 2017 and is equal to 21169.11. But there have been moments of dramatic declines in the history of the index. The strongest daily drop was recorded on the famous "Black Monday" 10/19/1987 - 22.6%. Except for the USA, comparable scales of the collapse of stock indices almost simultaneously occurred in most developed countries. There have been many attempts to explain this phenomenon, but none of the versions stand up to scrutiny. World economy did not show obvious signs of overheating, there were no natural or man-made disasters that day. This case, a perfect illustration of what is commonly called a "black swan" (in the words of the Lebanese economist Nassim Taleb), is an event that cannot be predicted, but has huge devastating consequences. The table summarizes all cases of significant (more than 20%) falls in the DJIA index relative to its previous values:
These data end in 2015, but since then there have been no serious corrections in the market. You can see the current value and composition of the Dow Jones online, for example, here: marketwatch.com/investing/index/djia.
Dow Jones Investment Options
The value of industrial and sectoral indices is not limited to economic research and preparation of business plans for large corporations. Great attention is paid to the dynamics of indices investment funds and private investors when compiling their portfolios. The popular view is just based on the ones included in the structure of one or another index. At the same time, it will not be possible to achieve the maximum yield on the market, but the risk is proportionally reduced, since the largest and most reliable issuers are included in the index. In the long term (10 years or more), investing in indices clearly outperforms and .
In terms of practical implementation, there are 3 main types of investment in the industrial index:
- Buying shares of all companies that make up the index;
- Buying a futures on an index;
- Buying a contract for difference (CFD);
- Buying shares of an ETF fund investing in an index;
Consider the pros and cons of each option.
The inconvenience associated with shares is obvious: this and heavy expenses to build a portfolio, and the need to track the composition of the index for the rapid replacement of withdrawn companies with new ones, and the time spent on selling the portfolio, if necessary, to fix profits or move into higher-yielding assets. But, along with the disadvantages, this type of investment also has a great advantage: unlike an index, a stock. Let's compare the return on investment in the value of the DJIA index and in the shares that made it up on different stages company history.
Thus, investing in stocks shows an average annual return of almost 2 times higher, which adds up to astronomical figures for the entire period. But to get an effective yield, you need to take into account. Here's what the performance of the index stock looks like with this adjustment.
Investing in Dow Jones index futures is expensive and therefore available almost exclusively to professional investors. Currently on Chicago commodity exchange CBOT (Chicago Board of Trade) "small" futures Mini Dow $5 and "big" Big Dow $25 are traded. The cost of contracts is calculated on the basis of $5 or $25 per 1 point of the index value, respectively, i.e. at the moment, even for a "small" futures, it exceeds $100,000. However, for short-term transactions, you can get by with relatively a small amount, because This is not a deliverable, but a settlement futures. When opening a long position, a trader receives a profit proportional to the growth of the index, and when opening a short position, in proportion to its decrease.
Russian brokers provide extremely limited access to trading on the Chicago Stock Exchange, and the above futures are not among the available instruments. Alternatively, you can use the services of the Russian representative office of the American broker AMP Global Clearing LLC (amprus.ru). To make a deal with a "small" futures, you must have at least $4,790 on your account. This amount consists of the minimum margin requirements (for this contract they are equal to $4290) and the daily margin, which gives the right to commit intraday trade($500). But the investor does not trade intraday, which means that he will have to transfer the open position to another day.
In this case, an overnight margin of $3,300 comes into effect. If the index drops by 660 points, the position will be forced. But in history there have been much more serious falls in the index. Given these considerations, a large margin of safety must be included in the invested amount, which is not available to every investor. Moreover, a fixed fee of $85 is charged for access to exchange trading, a commission for withdrawing funds from an account is $30, etc. Among foreign brokers, there are those who offer less stringent conditions for trading futures on the DJIA. For example, the British IG Group Ltd ($2 per point, the minimum margin is 0.5% of the contract value). However, this broker does not have a representative office in Russia.
The easiest and most affordable way to invest in the DJIA is to use the services of forex brokers to buy a contract for difference (CFD, Contract for Difference). Usually, this means profit due to the change in the price of an asset between opening and closing a position. Some brokers allow you to work with this tool with just a few dollars on your account, for example, Amarkets (see my
There is a stock exchange saying: "America sneezes, and the whole world catches a cold." But how to understand what exactly is happening with the largest economy on the planet, the state of which is closely monitored by almost all traders in the world?
indicators of "health" economic processes are stock indices. As for the US, these are the S&P500 (tracks the dynamics of the 500 largest companies), the NASDAQ Composite (an index of high-tech companies) and the Dow Jones - the oldest and most famous of all indices, a barometer of American development. Even people unfamiliar with the exchange world have at least heard something about this index, and traders are familiar with it firsthand. In this article, we will tell in simple words what is the Dow Jones index, what does it affect, what is it measured in and what does it depend on.
History of the Dow Jones
The Dow Jones Index, or rather the Dow Jones Industrial Average, was developed by Charles Dow, the founder of The Wall Street Journal and the progenitor of the Dow theory. The Dow Jones Index dates back to 1884, and was not originally published, but was used for "private use", and it included 11 stocks (9 railway and 2 industrial).
Charles Dow believed that the index should confirm the dynamics of the stock. That is, the Dow Jones index shows whether the stock will continue to rise in the future or not. If the stock grows and the index too, the growth of the stock is more likely to continue. If the stock is growing, and the index began to decline, it is more likely to decline in the future. The “public” version of the index appeared on May 26, 1896 and was already called industrial (at that time the main capital-intensive companies were industrial). The index included shares of 12 companies in its basket, and was calculated as the arithmetic average of the prices of these shares. Its first value is 40.94 p.
Dow Jones Index Family
Nowadays, the Dow Jones index, or rather, the Dow Jones family of indices is calculated rating agency Standard and Poor's (current name after rebranding of S&P Global). This organization assigns long-term and short-term ratings to countries, issuers and individual issues of debt securities in 26 countries of the world, as well as providing investors with various market research. Indices of the Dow Jones family calculate not only the dynamics of stocks, but also, for example, Dow Jones Real Estate. However, traditionally, when we mention the Dow Jones indexes, we are talking about the stock market.
The Dow Jones stock index family includes:
Dow Jones Industrial Average - the main representative of the family (30 shares)
. Dow Jones Industrial Average Yield Weighted - a similar index weighted by dividend yield,
. Dow Jones Transportation Average - an index of transport companies (20 shares)
. Dow Jones Utility Average - utility companies index (15 stocks)
. Dow Jones Composite Average is the index that unites this family. Includes industrial, transport and municipal indices - 65 shares.
In addition to American companies and tracking their dynamics, Dow Jones also monitors global trends using the Dow Jones Titans family of indices: Dow Jones Global Titans 50 (the main "world" index), Dow Jones Turkey Titans 20, Dow Jones Italy Titans 30, Dow Jones South Korea Titans 30, Dow Jones Africa Titans 50, and Dow Jones Safe Pakistan Titans 15. Each tracks the named number of shares in the largest companies in their respective regions.
Let's talk in more detail about the most famous and tracked index - the Dow Jones Industrial Average. This index is calculated in a Price Weighted way, and not only in US dollars, but also in EUR, CAD and JPY. The index calculation base includes 30 stocks of the largest companies (the S&P500, for example, includes 505 shares of 500 companies). And the name “Industrial Average” is rather a tribute to history, since the index contains several sectors with weights at once.
The total capitalization of the companies represented in the index is $5,695,582.30 million. The weight of the main heavyweight in the index is 5.4%, and the TOP-10 is 44.4%. As for the average fundamental indicators of companies from the calculation base, they are as follows: P / E - 19.75, P / B - 3.34, dividend yield - 2.49%, P / S - 1.95, P / Cash flow - 11.53.
For those who want to get the yield of the index on the NYSE, the ETF SPDR Dow Jones Industrial Average ETF Trust (ticker symbol DIA) is traded, the volume of transactions for which averages about 5 million (the price is about $200, the number in the lot is 5). The Dow Jones Industrial Average is also trading futures contracts on CME, the most liquid of them are mini-contracts (E-mini). But in terms of turnover, the futures on the E-mini S&P500 are firmly holding the palm - 1.5 million against 138 thousand for the mini Dow Jones.
Rice. 2. Trade volumes on the E-mini Dow Jones Industrial Average on CME
As for the global counterpart of the Dow family - the Dow Jones Global Titans index - Russia ranks 16th in it - 0.7% of the total weight with $58,532.78 million in capitalization of incoming companies. Our country in this list is right after South Korea, which has a similar weight indicator, but with a capitalization of $238,843.19 million. ETF SPDR Global Dow (ticker symbol DGT) is traded on this index on the NYSE, however, its turnover is much smaller and averages about 5 thousand (the price is around $70, the number in the lot is 200).
Rice. 3. Country Composition of the Dow Jones Global Titans Index
Conclusion
Despite the rich history, the Dow Jones index is somewhat less popular among traders than other key stock indices. However, it is necessary to understand what the Dow Jones index means, and also to track it - it can give more sensitive signals (due to the large value of 20 thousand points versus 2 thousand according to SnP500).
In this article, we briefly talked about what the Dow Jones index figure means. Would you like more information on this topic? Register on the Otkritie Broker portal - we will tell you how to work with indices and earn money using their signals!
The Dow Jones index was originally created as a tool that allows you to quickly assess the economic condition of a country or individual sectors of the economy. It was the result of a thorough study of price movements in the stock market.
It was found that the activities of giant enterprises greatly affect the state of affairs in the state. The study, processing and analysis of statistical data contributed to the emergence of a world indicator, without which it is impossible to imagine the modern stock market.
In the likeness of the Dow Jones index, many derivatives have been created. This contributed to the improvement of the quality of analytics and forecasting of the stock market. And with such information, a smart investor is able to make good money.
History origin
With the advent of the first trading exchanges, it was very difficult for people to objectively track the real state of affairs in the market. Stock market needed universal indicator, which could be targeted.
The Americans Charles Dow and Edward Jones, who were business partners, proposed a way out of this situation. They were engaged in analytics and studying the economic life of the country.
Initially, the index was used internally by a company that processed data and provided daily summaries of its activities.
On May 26, 1896, the index was first introduced to the general public. Initially, it was calculated using a notebook and a pen. The average value of economic indicators of 12 companies in the US industrial sector was calculated.
This simple but innovative idea was the beginning of the formation of the "index direction" in the science of technical analysis. financial markets. Over time, the index was modified, supplemented by new companies and calculations.
The discoveries and principle of operation of the Dow Jones index made it possible to interrupt the chaotic reaction of the markets to various geopolitical events. This was the beginning of a more advanced and scientifically based process of analyzing and conducting trade transactions.
Index Calculation Procedure
The principle of calculating the Dow Jones is very simple, convenient and understandable. Its practicality has been proven by a long history of existence.
With the growth and improvement of financial analytics, index calculations were constantly added with new indicators. To date, it represents the average value of the share price of giant enterprises included in it.
Due to the fact that the index takes into account the actual price of the securities of enterprises, and not their capitalization, changes in the index only affect the price itself, included in its composition.
Initially, the index was calculated as the average of all its components. For example, the index registry includes three companies worth $10, $20, and $30 per share. Their average value at the end of the business day is $20 per share.
Let us assume that a company whose shares are worth $30 per unit expands and opens up a new direction of trading. In this case, the price of its shares due to a temporary reorganization may become $25 per unit.
So that the indicators are not distorted and correspond to the realities of the market, a conditional indicator "divider" was introduced. It is applied if the opening price of a new day corresponds to the closing price of the previous one.
3 - (10+20+30)/25=0.6 ("divider" of the above companies)
If it is not introduced, then a sharp and biased jump will occur:
(10+20+25)=18.3 - with the strengthening of one of the companies, the indicator decreases. As you can see, this form of calculation is not entirely correct.
Index today
At the end of 2014, the Dow Jones index was heavily overvalued. He, together with other financial indicators of the world market, has significantly lost its positions.
However, the growth of the US dollar gives rise to an upward trend in the price of shares included in the index. By March 2014, it reached the level of 16154 points. In April 2014, the index is expected to move slowly to the level of 16450 points.
The dynamism and constant sorting of the composition of the Dow Jones index allows you to objectively monitor the state of the market.
Skillful use of this financial instrument allows global investors to multiply their profits.
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