stock market index trading strategy
One of the most important strategic decisions is to choose the index or indices you're going to be trading, as there are several of them available. One strategy of trading the indices is to buy into index funds, buy index futures, or buy index tracking stocks, or any other investment vehicle that tracks the performance of the stock market. After choosing your investment vehicle, the two main strategies to investing are using fundamental analysis or technical analysis. If you decide to use fundamental analysis, the macroeconomic indicators should play a much larger role in your analysis than they do for a single stock. In fact, due to the large number of indicators that can and do affect fundamental analysis-based trading strategies, many traders turn to technical analysis, which is mostly based on mathematics and statistics. Stock Market Index Trading Strategy - Index FuturesStock index futures contracts were introduced by the Kansas City Board of Trade on 1982. Thereafter, also CME and other exchanges have taken these products into their product sortiment. Index futures are an attempt to profit from the fluctuations of value in the underlying stock index. Whatever your trading strategy for these markets is, you should test it on historical data before applying it to real market situations. Luckily, Kansas City Board of Trade provides historical data on their products. If you like, you can download Kansas City Board of Trade historical market data from 1970 forward free of charge (link opens up a new window). Apart from trying to profit from market fluctuations, some market participants use the index futures for hedging. This way, the movement in the index futures results in either losses or profits, which are counterbalanced by opposite profits or losses in the investor's large portfolio of stocks. Stock index futures are traded in at least:
Stock Market Index Trading Strategy - Index Tracking Stocks There are several index tracking stocks in existence, such as the Nasdaq-100 index tracking stock (symbol: QQQ). With NASDAQ-100 Index Tracking Stock, you buy or sell shares in the collective performance of the NASDAQ-100 Index in a single transaction. And because NASDAQ-100 Index Tracking Stock is traded like a stock, you can buy them on margin, sell short or hold your shares for the long term. Actually, when you purchase a NASDAQ-100 Index Tracking Stock, you're investing in the NASDAQ-100 Trust, a unit investment trust that holds shares of the companies in the NASDAQ-100 Index. The Trust is designed to closely track the price and yield performance of the Index. Trading strategies based on index tracking stocks like the QQQ aim to either profit from the overall market fluctuations or hedge against losses in well diversified portfolios. Compared to buying into well diversified mutual funds, index tracking stocks can provide a more liquid marketplace and you should be able to use the stocks as collateral on margin trading as well, if you need to. |