Basic Index Trading, Useful Tips For Trader
Stocks trading index, is known to have a high level of volatility, even higher than Forex trading. Unlike many forex traders that we have encountered, the number of Index Traders is still relatively small. With a high level of volatility, not all traders are able to become an Index Trader.
This Trading Index is more suitable for high-risk traders who are brave in taking high risks. But with enough knowledge, all traders can just feel the profit from this Trading Index. For that, we will review a few tips that might be useful for you as a first step to learn the Trading Index.
Based on Blogwalking I have done, the majority of Index Traders in Malaysia like trading on the HANGSENG and KOSPI Indexes. The rest they choose to trade on the NIKKEI Index and Dow Jones. Why are they so interested in Hang Seng Index? On average their answers are the same, the Hang Seng Index has high volatility among all other Index trading products or forex trading, so the profit offered is very large in the day-trading category.
The small number of Index traders in Malaysia because of the less of brokers who offer index with small money.
Usually, the index traders will outsmart by finding foreign brokers who provide early deposit waivers.
Index trading is one type of futures trading which consists of a combination of the majority of shares selected country.
Often also called Stock index also functions as an indicator of the overall price movements of the shares it represents.
Not much different from other types of futures trading, because they do not have assets in conducting transactions, the contract value is the main reference.
The size of the contract value in the index trade is determined based on units commonly known as lots.
And each country has its own rules and procedures for regulating and trading the index market.
The main capital markets index itself is divided into two main capital markets that are commonly traded.
Namely the American and Asian capital markets along with market times and trading sessions.
Description: The more companies joined in one Index, the slower the movement. And the fewer companies that are joined in one Index, the wilder the movement. Maybe someone is wondering “why?”
So, the movement in this Trading Index that affects is the company that is incorporated in it. Let’s say Index A has 20 companies in it, and let’s say 1 company inside is bankrupt. So Index A only has 19 companies, and the value of 20 to 19 can be said to be a very big value. Because that was the Trading Index whose companies were a little wilder in its movements.
We compare it to the others, says Index B which has 200 companies in it and let’s say there are 2 companies that go bankrupt. So Index B is 198 companies, it’s clear that the value is different from that of Index A. That’s why the Trading Index with many companies in it is quieter.
US Trading Index:
- DJIA (Dow Jones Industrial Average), in the #Dow Jones there are 30 companies and each movement is 1 pip. So if you want to play with the trend like a roller coaster can try this index
- The Nasdaq 100 Composite, in the #Nasdaq itself there are 100 companies and every movement is 5 pips (once a 5 pips ). So if you want to get big here, it’s the place.
- The S & P 500 (Standard & Poor’s 500), in the #S & P there are 500 companies and each movement is 25 pips (25 pips ). so if you want to get big here, it’s the place.
The US Trading Index itself can be considered good, why? because all three are interconnected. So if you go up everything goes up (3-3) and vice versa, if you go down it all goes down. On the other hand, US Trading Index also influences Asian Trading Index (more specifically affects HANGSENG). But in normal market conditions (without issues from China)
Asian Trading Index:
- NIKKEI 225 (Japan-Tokyo), in #NIKKEI there are 225 companies and each movement is 1 pip. So if you want to look for a safe, walk around like GBPJPY, you can try it at #NIKKEI. The trading session itself is divided into 2 sessions. First Session (01.45-08.15) and Second Session (09.15-21.00) meta-time.
- Hangseng (Hong Kong), in #Hangseng there are 48 companies and each movement is 1 pip. This little Hangseng is almost the same as the DJIA (the movement is wild), so if you want to play the trend like a roller coaster, you can try here. And Hangseng has a correlation with the US Trading Index, so the US Index can be used as a trend benchmark (but in normal market conditions [without issues from China]). The trading session itself is divided into 2 sessions. First Session (03.15-06.00) and (07.30-10.15) meta-time.
- Kospi (The Korea Composite Stock Price Index), in Kospi there are 100 companies and each movement is 5 pips (one move 5 pips ). So if you want to get big here, it’s the place. The open market session itself (02.00-08.45) meta-time.
Advantages of the Trading Index
Index trading has many benefits and advantages that cannot be provided by the types of stock transactions and some of which cannot be provided by other investment instruments. Among the advantages of indexes that need to be understood are:
Surely this is an initial consideration, the Index is an investment instrument that has the best performance, even 97% more than the investment performance of all active mutual funds over the past 45 years.
As with other futures trading, stock index trading does not require full funds, only requires a small portion of funds from the value of the contract or better known as the leverage system. With the use of leverage and system, margin allows every trader to get an ROI greater than the real value.
Each stock index moves to represent the stocks that are in it as a whole. The index is an ideal place to diversify a portfolio. for example, if a trader has bought one of the company’s shares in America and suddenly the company suffers a considerable loss, then through the diversification of the Dow Jones index the effect of the loss will not impact too much because there are still several other stocks that support the whole.
Short Selling (speculation and hedging)
The stock market has a tendency to fall or sharp correction. Even sometimes it happens faster than strengthening, but you can’t do anything except wait for prices to rise again.
Unlike the stock market, index transactions give you the freedom to make a profit either when the market is bearish or bullish. There are no restrictions on what conditions and how you can make transactions.
There are always ways to limit or even manage risk into luck. In transactions, you are free to do a hedging strategy (opening opposite positions with the aim of finding a balance to cover the value of the loss suffered)
Protect customer funds that are securely protected. In the world of trading in general, people are more familiar with the term segregated account. That is a place to store funds for customers/traders by futures exchange companies safely in accordance with market rules even though buyers and sellers are unable to implement the agreement.
Basic Tips Index Trading
For those of you who are used to trading on forex and stocks, I am sure you will feel a striking difference when you try to jump into Index trading. With a high level of volatility, our adrenaline will be driven to follow the “wildness” movement of the Index chart. Then it is very important for you to always remember the following:
- Think and act quickly.
- Have sufficient capital margin to survive.
- Has entry points and exit points before opening a position.
- Has a strict trading plan and is very, very disciplined.
- Take care of emotions, so as not to be too greedy.
The market index often moves with a trend that tends to be short. I think the type of swing trading is the most efficient for trading in the Index market. Swing trading is not trying to predict the length of the trend that occurs but has the aim to maximize profits at the time of the trend and retracement. In order for swing trading to run successfully, we must be able to determine the reference points and exit points quickly. The problem that often occurs is that many traders do not have enough capital margin to hold positions that should be profitable. Let’s look at the following example
A trader must bear a floating loss of 37 ticks, equivalent to $ 1850 on a regular account before the trend moves according to the analysis we plan and become profitable. Many traders are unable to hold such a floating loss, even though they believe that the position taken will be profitable.
For this reason, the choice of a mini account may be more suitable for those who do not have large capital margins or traders who are just starting the trading index. Moving average crossover (intersection of moving average indicators), often used to determine entry points and exit points. Because the intersection of the MA can be used as a sign of the start/end of a trend. But if we only rely on the intersection of the MA line, then we will find false signals. For this reason, other indicators such as Stochastic and MACD need to be added to make sure the trend is happening. Don’t forget to always use stop-loss where High and Low the previous day can be used as a reference.