Why Indices is the easiest asset class for beginners?
Introduction
Indices (or Indexes) are weighted sum of local stocks.
The Dow Jones is the indices for the 30 largest US companies.
Nasdaq (National Association of Securities Dealers Automated Quotations) is the indices for the tech stocks.
FTSE (pronounced Footsie) is the indices for UK stocks
Most countries have 1 or multiple indices for their stocks.
Indices are derivatives - meaning they're traded via contracts (CFDs, options, futures, ...) based on an underlying financial asset (or set of assets).
Derivatives are used by traders to speculate on the future price movements of an underlying asset, without having to purchase the actual asset itself, in the hope of booking a profit
Less silly than underlying stocks
When trading equity, any news may bring very high volatility at least in the short-term.
Think of when Elon Musk tweeted that the "TSLA stock is too high" or when he told the SEC he doesn't care what they think.
No wonder why the stock dropped by 2 digits percent short-term
Indices are sensitive though to macro-events such as recession, inflation, US elections, coronavirus, ...
That's being said, it's unlikely that the US indices could go up or down too much in a day.
CME Group U.S. equity index price limits (and corresponding CME and CBOT rules) are designed to coordinate with circuit breakers provisions as applied by the New York Stock Exchange (NYSE).
Advantageous Trading Hours
US stocks quote Monday to Friday from 9:30 EST to 4:30 EST.
However, the US indices quote Monday to Friday 23 out of 24h.
Myself as a European, I'm trading the US indices from the EU morning here.
Even if the underlying equities aren't quoting yet, the indices can be traded.
There are often superb trades outside the US Cash stocks trading hours.
This is uncommon knowledge as most supposed that indices aren't volatile when the underlying stocks aren't quoting - nothing could be further from the truth.
There is serious money to be made when our US friends are still sleeping and even after the US Cash close (4:30 pm EST)
Indices are easier to trade
Inherent to lower swing volatility, they're easier to trade. Intraday Indices volatility has been my bread and butter for years now.
This asset class can be traded with mostly (95%+) technical analysis and unlike cryptocurrencies trading, we don't need to double-check every 5 min what's going on with Twitter, news, telegram, discord, and constantly checking if the company behind the asset is still alive.
Of course, this is also true with stocks - many US companies exit scammed and the stock became worthless quickly
Crypto Indices
I mostly trade DefiPerp on FTX - there are a few others available on TradingView too
Those derivatives share similar characteristics with equity indices.
You could be positively surprised that your strategy made for Equity Indices also work for Crypto Indices.
Conclusion
As a beginner or as someone not performing well with trading, Indices could be a great alternative.
Less sensitive to news and rumors hence more predictable with technical analysis (this rule is not 100% valid - nothing is 100% guaranteed in trading).
Less "noise" means we're less disturbed - often lead to better trading decisions.
I started my trading journey with Indices and I still trade them every week
Wishing you all the best for your trading week
Daveatt
Indices (or Indexes) are weighted sum of local stocks.
The Dow Jones is the indices for the 30 largest US companies.
Nasdaq (National Association of Securities Dealers Automated Quotations) is the indices for the tech stocks.
FTSE (pronounced Footsie) is the indices for UK stocks
Most countries have 1 or multiple indices for their stocks.
Indices are derivatives - meaning they're traded via contracts (CFDs, options, futures, ...) based on an underlying financial asset (or set of assets).
Derivatives are used by traders to speculate on the future price movements of an underlying asset, without having to purchase the actual asset itself, in the hope of booking a profit
Less silly than underlying stocks
When trading equity, any news may bring very high volatility at least in the short-term.
Think of when Elon Musk tweeted that the "TSLA stock is too high" or when he told the SEC he doesn't care what they think.
No wonder why the stock dropped by 2 digits percent short-term
Indices are sensitive though to macro-events such as recession, inflation, US elections, coronavirus, ...
That's being said, it's unlikely that the US indices could go up or down too much in a day.
CME Group U.S. equity index price limits (and corresponding CME and CBOT rules) are designed to coordinate with circuit breakers provisions as applied by the New York Stock Exchange (NYSE).
- 7%, 13%, and 20% price limits are applied to the futures fixing price and are effective from 8:30 a.m. CT – 2:25 p.m. CT. Mondays through Fridays. From 2:25 p.m. to 3:00 p.m. CT, only the 20% price limit will be applied to the futures price-fixing.
- 5% up-and-down limits are effective 5:00 p.m. - 8:30 a.m. CT. Sundays through Fridays; and 3:00 p.m. - 4:00 p.m. CT, Mondays through Fridays. Between 3:00 p.m. - 4:00 p.m., the 5% price limit will not be allowed to breach the 20% daily limit.
- The fixing price is the volume-weighted average price, VWAP, calculated during the 30 seconds of trading from 2:59:30 p.m. – 3:00:00 p.m. CT
Advantageous Trading Hours
US stocks quote Monday to Friday from 9:30 EST to 4:30 EST.
However, the US indices quote Monday to Friday 23 out of 24h.
Myself as a European, I'm trading the US indices from the EU morning here.
Even if the underlying equities aren't quoting yet, the indices can be traded.
There are often superb trades outside the US Cash stocks trading hours.
This is uncommon knowledge as most supposed that indices aren't volatile when the underlying stocks aren't quoting - nothing could be further from the truth.
There is serious money to be made when our US friends are still sleeping and even after the US Cash close (4:30 pm EST)
Indices are easier to trade
Inherent to lower swing volatility, they're easier to trade. Intraday Indices volatility has been my bread and butter for years now.
This asset class can be traded with mostly (95%+) technical analysis and unlike cryptocurrencies trading, we don't need to double-check every 5 min what's going on with Twitter, news, telegram, discord, and constantly checking if the company behind the asset is still alive.
Of course, this is also true with stocks - many US companies exit scammed and the stock became worthless quickly
Crypto Indices
I mostly trade DefiPerp on FTX - there are a few others available on TradingView too
- DeFiPerp
- MidPerp
- ShitPerp
- UniPerp
- ....
Those derivatives share similar characteristics with equity indices.
You could be positively surprised that your strategy made for Equity Indices also work for Crypto Indices.
Conclusion
As a beginner or as someone not performing well with trading, Indices could be a great alternative.
Less sensitive to news and rumors hence more predictable with technical analysis (this rule is not 100% valid - nothing is 100% guaranteed in trading).
Less "noise" means we're less disturbed - often lead to better trading decisions.
I started my trading journey with Indices and I still trade them every week
Wishing you all the best for your trading week
Daveatt
⭐️ Listed as TradingView Trusted Pine Programmer
📧 Coding/Consulting Inquiries: dave@best-trading-indicator
Telegram: Daveatt
⏩ Course: best-trading-indicator.com
Twitter: twitter.com/bti_trading
📧 Coding/Consulting Inquiries: dave@best-trading-indicator
Telegram: Daveatt
⏩ Course: best-trading-indicator.com
Twitter: twitter.com/bti_trading
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