Dow Jones – The Deepest Secrets Revealed
InvestTechFX top analysts have just revealed the darkest deepest secrets of the Dow Jones Industrial Average that drive’s traders upside down and reflects the fluctuations of the US economy. www. investtechfx. com
Toronto, Canada (PRWEB) November 22, 2009
According to InvestTechFX the worldwide Forex broker offering 1 pip spread, the Dow Jones Industrial Average represents the average worth of 30 of the largest and most commonly held public companies in the United States of America. Founded in 1896 by Charles Dow along with the statistician Edward Jones, the index was originally made up of only 12 stocks. Of the 12 original stocks, only General Electric remains as one of the 30 stocks counted in the average. Due to the fact that the Dow Jones Industrial Average is the average of 30 of the most commonly held stocks in the US economy, the index is often used, along with the S&P 500 index, NASDAQ composite and Russell 2000 index, to gauge the general health of the US economy.
InvestTechFX leading Forex Corp. using the MetaTrader 4 platform reports that the Dow Jones Industrial Average name is more historic than representative of the contents, as the majority of the 30 member stocks have nothing to do with the heavy industries, and include food, retail, pharmaceuticals and financial sector companies. However, when the index was first conceived, it was intended to measure the strength of the American industries sectors, and the 12 stocks which made up the index were all part of the heavy industries sector. The stocks which make up the index have undergone several significant changes over the more than 110 years of its existence, and now all but one of the original stocks are no longer counted in the index, and the index now measures the general strength of the entire US economy, rather than just the industries.
InvestTechFX worldwide Forex company allowing trading on futures explains that the Dow Jones is not a true arithmetic average. If it was a true arithmetic average, the value of the index would be calculated by taking the sum of the 30 member stocks and dividing them by 30. This does not, however, take into account things like stock splits which would affect the continuity of the index. Instead, the divisor is adjusted based on these changes, which insures that the index is continuous. As a result, the value of the average is higher than it would be had it been a straight algorithmic average. Currently the Dow Divisor is calculated at 0.132319125, which means that for a $1 change in the price of a stock, the average moves by 7.56 points.
InvestTechFX leading worldwide no commission Forex Broker representative reports that the 30 companies included in the Dow Jones Industrial Average are 30 of the most commonly held publicly traded companies in the American economy. Due to the prominence of these stocks, they tend to mirror what is going on in the rest of the economy as a whole. It is for this reason that the Dow Jones is one of the most common indicators of the strength of the current US economy.
InvestTechFX leading 1 pip fixed spread Forex broker would like to point out, however, that there are critics to the Dow Jones as an indicator of the US economy. First of all, the fact that it is calculated using a weighted average, which means that stocks with relatively higher prices have more of an effect over the average than stocks with lower values. Therefore, a $1 change for a cheaper stock will not affect the value of the average as much as a $1 change in value for another stock. Another criticism is that the components of the Dow do not open at the same time in the morning. This means that the stocks that open first thing in the morning begin effecting the average immediately, while the stocks which have not yet opened are still counted with their closing price from the night before (or the following Friday if it is Monday). This means that the Dow often opens relatively close to where it opened, rather than reflecting the actual opening prices of its component stocks. Some also argue that using only 30 stocks to represent the entire US economy is not an accurate representation, and an index which encompasses more stocks would be more accurate. www. investtechfx. com
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