Trading the Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is an index comprised of 30 of the largest publicly owned companies in the United States. 

These companies include: AT&T, Boeing, Chevron, Coca-Cola, General Electric, Intel, IBM, JPMorgan Chase, McDonald’s, Microsoft, Nike, Verizon, Visa, Wal-Mart, and Disney. The composition of the index changes periodically to include the strongest companies and remove those who have lost their leading position and influence. 

The Dow was created by Wall Street Journal editor Charles Dow in 1896, and has since become the most widely-quoted measure of the status of the entire market. Dow Jones maintains many different indices across markets, but the Industrial Average remains the most popular. 

The Dow: What You Need to Know

When TV financial commentators say “the market” is up or down, they are generally referring to the Dow Jones Industrial Average. 

  • The Dow reacts to world events such as natural disasters, wars, political unrest, and economic news. Trading the Dow means keeping an eye on current events and predicting which way the market will move in response. 
  • The index also fluctuates based on economic reports such as unemployment rates, job creation, interest rates, GDP figures, and other economic benchmarks. 
  • The Dow is a price-weighted index, meaning that stocks with higher values per share will have more influence on the average than shares with lower prices. Because of this, the Dow has been criticized as an inaccurate portrayal of the market. Major price movements in the more heavily weighted stocks will reflect on the index but not necessarily on the market as a whole. 
  • Movement of the Dow tends to correspond to the movement of the market as a whole when the price swings are large. Yet many critics say that the Dow is no longer an accurate reflection of the health of the market in an increasingly global economy. This may be important when purchasing the individual stocks within the index, but trading the Dow as an index requires analysis of the index itself and the factors that can affect it. 

Trading the Dow, like any investment, requires a careful analysis of market conditions before trading.

Trade Dow Jones