Ultimate Trading

Strategies for the DAX,

FTSE, Dow and S&P500

www.adss.com
Ultimate Trading Strategies for the
DAX, FTSE, Dow and S&P500
Stock markets have attracted traders for decades with the promise of higher potential returns
than most other investments however, stock trading comes with its share of risks. In fact, share
prices of companies are known to fluctuate significantly over a given period of time.

The global stock market is massive. Its

capitalisation exceeded $80 trillion in 2018,
representing more than 300% growth from $25 Did You Know?
trillion in 2009. In 2017 alone, the global stock
The US represents around 43% of
market cap surged almost 22%, buoyed by a
the global stock market cap but
strong recovery in corporate earnings in the
makes up only 17% of the world’s
US and Europe and favourable macroeconomic
stocks.
reforms.

Volatility of Stock Markets results from the fact

that a company’s share price is impacted by a
plethora of factors, both internal and external. Did You Know?
Investing in stocks requires traders to remain
Since 1926, US large cap stocks
abreast of the individual company’s financial
have returned on average 10%
health, new product developments, changes in
per annum. This performance has
management and other internal factors. As well
made stocks more attractive for
as keeping tabs on a host of external factors
long-term investors than Treasury
including changes in the competitive landscape,
bonds, which have returned on
developments in the sector, economic growth
average 5.6% annually in this
and the state of the labour market. Those who
timeframe.
are new to trading and even some experienced
traders do not have the time to delve into all the
factors that impact the company they wish to
invest in. So, how do they gain exposure to the
potential offered by the stock market?

The answer is that they invest in stock

market indices, like the DAX, FTSE, Dow and
S&P500, rather than trading the shares of
individual companies.

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What are Stock Market Indices?
Stock market indices are essentially a group of selected stocks listed on a stock exchange.
While there are global and national indices, the most common stock indices represent a specific
section of the stock market.

The price of an index is calculated based on the stocks it represents. However, not all stocks
may be treated equally. Mostly indices are market-capitalisation weighted, which means they
assign weight based on the market cap (calculated by multiplying a company’s share price
with the outstanding shares) of the companies. Among the most popular market-cap weighted
indices is the S&P500. Other indices may be price-weighted, in which the stocks are weighted
in proportion to their respective share price. An example of this is the Dow Jones Industrial
Average (DJIA), which assigns more weight to companies with higher share prices.

Advantages of Investing in Stock Market Indices

Stock market indices provide an easy way for investors to gain exposure to various stocks
traded globally.
Benefits of trading stock market indices include:
• No need to research individual company statements.
• Offer more exposure for the same amount of funds invested.
• Trading in stock market indices is less volatile than trading in individual stocks. Despite
this, there’s adequate volatility for traders to adopt various strategies and seek attractive
trading opportunities.
• Stock market indices offer a way to accomplish portfolio diversification without having to
invest in different stocks.
• Using indices, traders can take advantage of opportunities in the global equities markets.
• Offer a way to hedge existing stock exposure and dampen the impact of volatility.
• Stock market indices have real-time pricing, as they are linked to actual stock market
performance.
• Trading opportunities in both bullish and bearish markets, as traders can sell short or go
long depending on the direction they expect the market to move.

By trading stock market indices with an experienced broker, traders can also
expect to benefit from flexible leverage, depending on their risk appetite, as
well as extremely tight spreads.
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Get to Know the Four Major Stock Market Indices
The leading stock market indices are the DAX30, FTSE100, Dow and S&P500. To trade
these indices, it’s important to understand what they are comprised of, what factors
cause their price to move and other trading details.

DAX30
The DAX30 tracks the value of the 30 most liquid companies listed on the
Frankfurt Stock Exchange (FSE), which is the world’s tenth largest stock exchange
by market capitalisation.

What Moves the DAX30?

• Global macroeconomic factors

• Eurozone economic data released by the European Central Bank (ECB)

• Global and regional trade news, like tariffs on steel

• Economic dependencies between asset classes like oil and metals

• Currency wars affecting the bottom line of exporters, as Germany is

predominantly a manufacturer and an exporter

Trading Hours Priced in Major Companies

09:00 to 17:45 GMT;

Euro Bayer, Daimler, Siemens, Allianz
Monday-Friday

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FTSE100
The FTSE 100 is composed of the 100 largest

blue-chip stocks listed on the London Stock

Did You Know?
Exchange (LSE), which had a market cap of
The FTSE gets its name from being
around $33.8 trillion in October 2019. an acronym for the Financial Times
and the LSE, which were its original
parent companies. Its common
market slang is footsie.

What Moves the FTSE100?

• Global geo-political developments

• Monetary policies of the Bank of England (BoE)

• BoE quarterly inflation reports

• Performance of the British pound

• Commodity prices, especially oil and mining stocks

Trading Hours Priced in Major Companies

08:00 to 16:30 GMT; HSBC Holdings, Royal Dutch Shell,

Pound sterling
Monday-Friday BP

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Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average, or simply the Dow, consists of 30 largest publicly
traded companies listed on the NYSE and the NASDAQ.

What Moves the Dow?

• US economic data releases by the Federal
Reserve

• World events like natural disasters,

Did You Know?
political unrest, US presidential elections The Dow is the most quoted
market indicator in the world and
• Trade-related uncertainties – The US is is considered as a benchmark
a net-importer and has bilateral trade for gauging the performance
relationships with many countries like of portfolios and individual
Canada, China and Mexico. investments. If a portfolio
consistently outperforms the Dow,
• Major price movements in heavy-weighted
it is believed to be backed by a
stocks, particularly in sectors like tech,
sound investment strategy.
consumer goods, finance and healthcare.

• US Dollar Index

Trading Hours Priced in Major Companies

09:30 to 16:00 EST; 3M, American Express, Apple,

US dollar
Monday-Friday Pfizer, Boeing

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S&P 500
The Standard and Poor’s (S&P) 500 is a market-cap weighted index of the 500 largest
companies listed on the NYSE and NASDAQ. It is the best performance indicator of large
cap US equities.

What Moves the S&P500?

The factors affecting the S&P500 are pretty much the same as those that move the
Dow. Apart from these, the S&P500 is impacted by some other factors, since it is a
much broader index (spanning 500 companies versus Dow’s 30). These factors are:

• US bond market (impact on mortgage interest rates)

• Performance of emerging markets, like China and India

• Performance of IT, banking, healthcare and energy sectors

• Interest rate announcements by the Federal Reserve - interest rate hikes

make investments in bonds more attractive, resulting in a decline
in equities and S&P500

Trading Hours Priced in Major Companies

09:30 to 16:00 EST; Berkshire Hathaway, Facebook,

US dollar
Monday-Friday Apple, Amazon, JPMorgan Chase

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Best Trading Strategies for Stock Market Indices
Trading strategies for the DAX30, FTSE100, Dow and S&P500 are similar to trading any
financial instrument. You need to start by studying charts that show historical price
movements, as this will help you decide entry levels, exit points and stop loss.

Then you select a timeframe for a trade, which could be one hour, one day or even
several weeks. You can place a long or short trade, depending on how you expect the
market to move.

Using an EMA Crossover Strategy

EMA (exponential moving average) is an indicator that’s available for free on the ADSS
MetaTrader 4 platform.

Here’s a simple day trading strategy that new

traders can use to begin their journey with
DAX, FTSE, Dow or S&P500. Set the timeframe Tip
on your chart at 30 minutes and use the 10 and
Rigorously test your strategy using
25 exponential moving averages. a demo account before you trade
any of these indices.
Look for when the 10-EMA crosses the 25-EMA
and then wait for the price to reach the
25-EMA for placing the trade. How to
determine whether to go long or short? If
the 10-EMA is trending below the 25-EMA
and then rises and crosses the 25-EMA, then consider setting up a long position. In
case the 10-EMA is above the 25-EMA and then declines and crosses the 25-EMA, the
indication is to go short.

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Using Support and Resistance Levels
Place four horizontal lines for support and resistance on the five-minute chart. These
are the four most important levels of the previous trading session and comprise of the
previous day’s open price, close price, high and low achieved during the day.
Note whether the market was trending upwards or downwards or if it was in a
trading range on the five-minute chart in the last trading session.

As the market opens, keep an eye on the

current momentum. The first trade of the day
typically takes place within the first few minutes Tip
of market open and it is usually quite large.
Entering trades before major data
Notice whether it is bullish or bearish. Notice releases can be risky. New traders
whether there is a reversal or if the previous may want to avoid trading until the
day’s trend is continuing. dust settles.

Take note of the candlestick patterns as they

form as the trading day progresses. Look for
how candlesticks are reacting to the support and resistance lines on your chart. This
will help predict the next price movements. If the candlestick patterns are confirming
the resistance level, you might consider going short. If they are confluence with the
support level, it’s an
indication to buy.

Using Moving Averages

Here, the 200-day moving average is used on daily charts to measure trends. Traders
are bullish when prices rise above the 200-MA and bearish when prices fall below this
level. This is used for short-term trading setups.

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Trading Strategies for Specific Indices
Scalping Strategy for trading the DAX30
The DAX30 is among the most popular indices for short-term trading and traders often
use scalping with DAX CFDs. Scalping is an intra-day trading strategy where traders
enter and exit positions several times in a day, with the aim to leverage small price
changes.

• Timeframe : 5 minutes to 15 minutes

• Indicators : MACD (12, 26, 1), 4-period

EMA, Stochastic Oscillator Did You Know?
(14, 3, 3) with level-50 DAX scalping can be highly
volatile and requires very fast
• Signal to buy : When MACD > 0,
decision-making. So, it is used
Stochastic > 50, 4-EMA > -
by experienced traders and with
Smoothed Moving
disciplined placement of stop loss
Average (SMMA) orders.
• Signal to sell : When MACD < 0,
Stochastic < 50, 4-EMA< 6
SMMA

• Exit : At predetermined profit

levels or at pivot levels

Swing Trading Strategy for the S&P500

Swing traders take advantage of market retracements to find better entries and profitable
trades. It can help maximise potential gains while minimising risks. While traders place
fewer trades, they choose the ones with high risk-reward ratios. For trading the S&P500,
traders use daily charts.

• Indicators : RSI, MACD, Stochastic Oscillator

• Buy Signals : In an uptrend, buy at support levels or when RSI < 30
• Sell Signal : In a downtrend, sell at resistance levels or when RSI > 70

Ready to trade
Trading indices can be exciting and enjoyable. While it may seem challenging to new

traders, indices offer excellent trading opportunities and a chance to speculate on the
performance of market benchmarks. Stock market indices are also a great tool for
portfolio diversification and hedging against risk.

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Disclaimer:

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recommendation or solicitation to enter into any transaction or adopt any hedging,
trading or investment strategy, in relation to any financial product or instrument.

This information has been prepared without regard to any specific investment
objectives or financial position (including deposit size, leverage, risk appetite and risk
exposure) of any specific person or class of persons. Investment involves risks. Further,
trading foreign exchange, foreign exchange options, foreign exchange forwards,
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movements is informational. ADSS does not represent or warrant that such movements
are likely to occur in the future, as past performance is not necessarily indicative of
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