Does anyone here trade Indices. I am looking at the trends for the US and EU G7 countries Equity Indices and the general trend in the D1 candle seems to be bullish, I suppose that should be expected.
I noticed that UK100 has pretty much grown at a steady compounded rate of 6% a year since inception and was just wondering if this might be an easy set of trades to make for a number of reasons.
Pros:
Pre trade analysis is macro economic outlook for the country and companies that constitute the index
Seems to show steady growth in most cases with low volatility (Standard Deviation)
Cons:
Cost associated with holding buy and long trades negative
(some more that I can’t think of now)
US500 for example would have been a perfect candidate for buy and hold with a trailing stop from Jan 2017.
I haven’t checked but I would wager 20 pence that the average time spent in an uptrend compared to a downtrend or other market types is significantly higher in most cases. Maybe finally a good use for leverage?
I’m very happy spreadbetting indices, though they’re dominated by the Dow/S&P. If they;re not bullish, I wouldn’t want to be bullish the FTSE.
But stock indices are the only market with an inherent upward bias, as the weaker members are continually being ejected, and strengthening members added.
They’re much less unpredictable than stocks, which I hardly ever trade these days, in favour of the big indices.
Sounds good. Makes a lot of sense. The Index I am looking at are similar; CFDs. When is the index value re-calibrated to take account of the promoted and demoted companies and share issues as you mentioned.
Heh- Heh - That’s where I came from ! mainy the “Dirty Thirty”
As I remember, I had cause to look at the FTSE around 2014 and fonund it had been entirely range Trading for 20 years ! At that time I was beng pestered to invest some money in it throeugh a “Financial Advisor” and it was at the top of it’s range. Sure enough, it went down ! although now it is back up again.
Quite a long while to wait for your 6% to come good tho’
If you want solid investments at a decent rate of captal growth, My old man used to ereckon “House prices double every 6 years” (in uk - but I note you speak of “pence” ) that is and it has slowed somewhat since then.
[Edit does the “FTSE 100” still contain 101 shares ? ]
Its irregular with the Dow, as it has a membership of only 30, so there isn’t a set time-table, and changes aren’t made often. Adjustments to S&P500 membership seem to happen on a random time-table as and when required and are much more frequent. Changes to the FTSE100 are on a quarterly time-table, every March, June, September and December, though occasionally no changes are made at one of the quarterly reviews. In each index, if two members merge, that would trigger an immediate revision.
Potential new FTSE100 members are quite visible as the review date approaches if you monitor their market cap, and the new members are announced a little time before the revision date. Historically, there’s been a practice in London to buy the new members ahead of the revision date to get a little edge - index-tracking funds will have to buy into them when the revision is confirmed anyway, and their share price was almost certainly already on an uptrend or they wouldn’t have been candidates for membership in the first place.
This is the most quoted index on the US Equity watch channels but I don’t think it is a good barometer (for comparison) exactly because it is only 30 stocks and it is not weighted by the market cap of the constituents, which the other major ones are.
I am thinking about how I would approach a multi asset trading strategy and I have settled so far on starting with a comparison of their indices to see where money is working most effectively and then dipping into the constituents to find the individual instrument picks.
Yes, the Dow is a poor measure of the market: a view somewhere something between the S&P and the Nas100 would be more informative. But as its has such influence, you can’t ignore it.
Otherwise, market to sector to stock is a completely rational “top-down” approach.
With your permission, some features to watch out for -
eventually this approach leads you towards smaller and smaller stocks - they bring their own unique hazards
beware of being impressed by a X% rise in a particular index or sector index - this might be great for utilities but it could be crap for semi-conductors
don’t lose sight of the Dow/Nas/S&P’s mood - its hard to be accumulating stocks when these are bearish, that would indicate a reducing appetite for risk in equities.
That is a very informative post. I am thinking about multi asset so stocks, bond indices, volatility etc…but the problem with that is comparing bearish opportunities in one asset class with bullish opportunities in another. If you were trading only stocks and using a portfolio theory to select the best sub-sectors then the comparison would be the risk-adjusted rise in value, but how would you compare the opportunity cost of a bull in one market versus a bear in another.
I think the answer might be to assume that you looking to trend trade. Then you should find a way to quantify the strength of a trend; Bearish or Bullish. Then you can add the volatility piece.
It would be easier to split each index into two. So the UK100 for example would have one piece looking at the risk-adjusted strength of the bearish trend and the other the bullish trend. In that case with most equity indices the bullish trend should always outperform the bearish, if (as) those indices tend to have a upward bias in price movement.
