Trading for Living? 4 Indices You Should Be Watching

When scouring the market looking for hot assets, trends and signals to trade it is very easy to miss the forest for all the trees. I mean, there are a lot of different assets that can be traded ranging from stocks to commodities and forex and combinations of the above. In the wide world of equity trading there are thousands, literally, of tradable assets. Fortunately for us in the binary options world the choices are more limited but there are still quite a few to choose from, more than one person can watch at one time. My solution for this is to follow indices and use them to help break the market down into manageable chunks. This way you can watch to see if it’s commodities or stocks, the US or Asia, gold or oil that is the hot trade of the day. Then, when you know that, you can dig deeper into that segment of the market and find the trades you want to make.

In some cases, ie stock indices, it is possible to trade the index itself and this is something I recommend and choose to do for my self. For one thing it is much easier to trade a broader market than it is an individual stock. There is more news, the news is more significant, the market is more liquid and the signals are much clearer. For another there is just more safety in trading an index versus a single stock, bad news days will hurt less and winning days will be more consistent. The number one index that I trade and you should be watching is the S&P 500. It is the single most important, watched and heavily traded index on the planet. It represents the top 500 US listed companies and is generally accepted to represent the “broad market” of stocks. It’s good as a global and a US indicator, you can break down to other indices or stocks from there.

Now, in order to watch other countries here is my list; FTSE 100, XETRA DAX, ASX (Australia), the Nikkei and Hang Seng/Shang Hai. One thing to take note of though is that not all platforms or brokers have all of these indices for trading so be sure to check, asset lists are not all the same . The great thing about using a portfolio like this is that you will always have an index open, just about 24 hours a day. The only down time will be a for a few hours after the US market closes.

The very next and perhaps most important index to watch, in my opinion, is the Dollar Index. It is found with ticker symbol DXY, usually, and commonly called the DIXIE. It is a measure of the dollar versus a basket of world currencies, heavy on the Euro and Yen, and a great indicator of dollar strength. Some brokers actually have this index, but it is very few, the best thing to do with this is to use it as an indicator alongside a dollar pair you are trading. If the DXY is throwing off a wicked bull signal and the EUR/USD is in consolidation there is a good chance the EUR/USD will move lower, and will make similar moves across the entire currency correlation spectrum. If you are not familiar with currency correlation you need to be.

Another index that is good as a leading, coincident or confirming signal, actually 2 indices, are the Gold Index and the Oil Index. These indices represent the businesses and stocks that make up the industrial complex built around each commodity. They are tied to the price of their underlying commodity and quite often will give a leading signal for the commodity itself. Most broker will have at least a few commodities, gold and oil are almost always on the list. At the same time these indices can be used to find signals within their respective sectors. If the Gold Index is in a major bearish reversal I can go and look for gold miner stocks on my brokers platform and trade them appropriately. If there is more than one gold miner on the list look at their charts and rank them by signal strength.

One Index To Rule Them All?

There really isn’t one index to rule them all but there are a handful of indices you can watch to help you rule the market. In my opinion there are the S&P 500, the Dollar Index, the Gold Index and the Oil Index. You can add others but with these you will be well served. When possible I recommend you trade the index itself, or in the case of gold and oil the commodity itself, but the benefits of index watching are clear for those of you who like to trade stocks and individual currency pairs too. The index is your guide, it lets you know when a market is hot, when it might be moving and where it might be going. Use this knowledge along with your own analysis to dig down and find the signals that pay.