Trade of the Week – The Dow Jones

Trade of the Week – The Dow Jones
TRADER’S PARADISE

The most important ingredients to a great trading opportunity is VOLATILITY & LIQUIDITY. Volatility is defined as the increase or decrease of a symbol over a specific time-period and liquidity is defined as the degree of availability to which a symbol can be bought or sold.

In the case of the DOW JONES, liquidity is never a problem since it’s one of the most traded Indexes in the world.

In regards to volatility, there are varying ranges the DOW JONES has traded but, this past month and especially last week was one of the most volatile trading periods in history. In last week’s trading session, the DOW JONES traded within a whopping 1,500 point range on both the upside and the downside!!

Having greater volatility benefits a trader in the following ways;

  • More opportunities to make money (where under normal conditions you may have several opportunities during the day, on such days you have many more opportunities)
  • You can make more money in a shorter time-period – the moves are much more extreme
  • Chasing a symbol is generally not recommended in regular situation, however in a very volatile market it’s usually pays off very quickly

These benefits are generally more geared to a trading style called ‘SCALPING’ in where a trader enters and exits a trade many times over a course of a day. However, swing traders who hold a position 1-2 days which is on the shorter range of their trading horizons also benefit from such trading occurrences.

All in all, no matter what your trading style is VOLATILITY plays a great role in presenting greater opportunities to make more money in a shorter time frame. These opportunities don’t always present themselves but, when they do it’s really a great time as they say ‘strike while the iron is hot’!

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