As the author of the “Goldrush” series over the last 6 months or so, I have truly enjoyed taking our forex trading in a new direction by exploring other markets.
We have had some monster trades, some scary markets, some boring ones, and some very interesting discussions.
It has always been my goal to be the “complete trader” and in doing so, allow myself to trade many markets with skill and profitability.
It was the Goldrush blog that actually helped me develop my system known as Triple Threat and spawned the creation of the program and the website goldtrademaster.com.
But an interesting thing happened as I invited members here to join that program…………we learned to trade markets beyond gold! It is in that spirit that I now come back full-circle to introduce markets today that I have truly enjoyed trading over the last few months…..markets that I wouldn’t have begun to trade if I hadn’t done Goldrush essentially. How interesting the road, no?
So, instead of doing our regularly scheduled gold analysis today, I would like to discuss the Index markets instead, and just how the ability to trade them has transformed MT4 from a simple forex platform to the multi-market platform it has become. In 2015, I will begin introducing some analysis for everyone here in indices to allow you to explore some alternate markets you might not have considered up until now as I had not until I began seeing that my own members were making a killing in them.
So, today I will begin by giving you a bit of an introduction into the markets which are now tradeable on MT4. No, it won’t be a history lesson, and there is plenty of information out there telling you which stocks the indices represent, so I will keep it practical to give you just enough to be dangerous and how to access these instruments from your trading platform (if your broker supports it), before we start doing some serious analysis in 2015. Let’s take it away!!
INDEX MARKETS FROM MT4. AN INTRODUCTION
The Basics:
The index markets are some of the most famous markets out there and also the most well known.
They represent a basket of stocks that a nation “bundles” into an index which is supposed to represent a “slice” of the economy that is broad and well-rounded.
For the US, it is the DOW Jones Industrial Average, a basket of 30 stocks that are supposed to represent the US economy in a broad sense. They are known as “Blue Chips” and are the country’s largest and best known companies, and make up as a whole, a large portion of the corporate earnings world.
There is also the S&P500 which is a basket of now 500 companies determined by Standard and Poors, which attempts instead of concentrating the focus just on the 30 “largest” companies, it is a larger and more diverse basket. The Nasdaq index takes a piece of the technology companies that the stock market is known for.
Many of the largest economies of the world have their own indices put together in the same manner. The UK has the FTSE, Germany has the DAX, Japan has the Nikkei, just to name a few. The goal with indices is to be able to invest in the country, rather than in individual companies. They become a yardstick that measures an entire nations economy, rather than the specifics of any individual company.
When a country’s economy is strong, one expects their stock market as a whole to go up, and vice versa during troubled times. In this manner, they are a broad representation of the home nation’s power and strength on the global stage. We are interested in trading them because although they function much like a stock as a singular trading instrument, they are not subject to being affected by the troubles or triumphs of any single company within them.
They are diversified, and easier to understand this way. As traders, we can look at it in a very similar way to the currency pairs you are already familiar with. We buy and sell them, and they go up and down based on a whole host of factors. And although there was once a time where they could only be traded during market hours, the futures markets and electronic world have allowed us to extend those hours far beyond normal hours that the market is actually open.
Only very recently though, have these instruments been offered by brokers on the MT4 platform. Prior to a few years ago, you had to have a specific stock trading account or use another platform outside of Metatrader to trade these instruments. That came with very limited to no leverage, and sometimes very high capital requirements just to trade them. With the introduction of CFDs and the addition to MT4 though, they now have much lower requirements to trade them and can even be traded from an account as small as a couple thousand dollars where as in the past, most futures traders wouldn’t even dream of really getting anywhere without at least $25,000 in their trading account. Of course, with higher leverage, also come higher responsibility.
These markets can move very quickly, and just a few points can equal quite a few dollars even at a minimum 0.20 lot say on the DAX for example. It is important to understand that although the function of trading these instruments on MT4 is exactly like what you do with the currency markets, the margin requirements and dollar value per point will be need to be known and understood before attempting any trades. Your understanding of MT4 will allow you to understand the charting and the order execution, but take great care in studying the important differences in these markets before ever venturing a trade.
Spot vs. Futures:
There are two main ways to trade the index markets on MT4. The first is the market that everyone is familiar with: The Spot Market. When you watch CNBC and hear that the “DOW is trading at 17150″ they are speaking about the spot market unless they specifically say otherwise. This is the actual trading market and is only available during normal market hours. Each index market has their own schedule and trading hours in local time. The price you see is the price that is current. Most MT4 brokers do NOT use the spot market. Instead, they use the futures market. The futures market is essentially a parallel market of the spot market but deals in contracts in the future. This market normally reflects the current market, but the nominal prices are different.
The futures markets normally refer to the futures contracts that expire within the following month or two from the current time. Those are the most active markets and the futures markets that the vast majority of MT4 brokers use. The advantage of the futures markets is that they operate 24 hours a day although volume can be extremely low at certain times of day to the point that some brokers just close the doors to trading. For example, the DAX on my platform trades about 13 hours per day. Longer than the actual market is open, but shorter than some brokers that allow 24-hour a day trading.
My broker attempts to keep the doors open when there is enough volume to justify trading, which is beneficial to both them and me as the trader. The futures markets can be tricky in the sense that the price your chart shows will not be the price you see on TV, as it is a reflection of what investors/traders are willing to pay for a contract one or two months in the future. As the spot market goes up, so does the futures market, and as it falls, so does the futures market. It is a very good reflection, but it is important to note that sometimes nominal levels are difficult to communicate with people because they depend on the specific futures market being traded versus the spot market that is either open or closed. Futures markets trade even after the spot market is closed for the day.
Which Index To Trade?
This is a tricky question because a lot of it depends on where you live. If you are in Asia, you might find that the AUS200 or the Hang Seng might be a great market to trade for you because they will be active when you are trading. It does not make much sense to trade the DAX when there is no movement.
For someone in Europe, the FTSE, CAC, DAX or even the US markets are tradeable because they are active when Europeans are awake normally. The interesting thing is that even the European index markets tend to move the best AFTER the US markets open up. For US traders, there are options depending on which time of day they can trade as well. As far as which markets are the “easiest”, this is a tricky question too. The FTSE and the CAC tend to be the most “mellow” in terms of daily range for European markets. The DAX is the wild horse, with 250+ pip moves happening easily in one hour sometimes.
For US markets, the DOW tends to be the most steady to trade, while the Nasdaq is in the middle and the SP500 is the “wild horse” because of the huge dollar values that can accompany each point in price movement.
Even a smaller move of a few points on TV can translate into a massive amount of money for your position on your leveraged account. For beginning traders, I would suggest the FTSE and DOW to learn on. They tend to be the most stable and “normal” markets with moves that can be easily understood. As you gain confidence and experience, there is a big probability that you will want to trade the DAX, Nikkei and SP500 purely for the amount of money that can be made quickly from bigger moves that can make your monthly goal for profits in a single trade at times.
But I will say this now: INDEX TRADING IS ITS OWN ANIMAL AND NOT SOMETHING THAT SHOULD BE TAKEN LIGHTLY. It is very rewarding if done right, but can easily eat your lunch if done wrong. It is not hard to blow even a modest account QUICKLY if you suffer from “revenge trading” or are not confident in your methods and approaches if you try and trade the DAX or SP500 ignorantly, particularly if you don’t take the necessary time to learn the details. I’m not trying to scare you by any means, but I don’t want any one of you popping up a chart this week and thinking you can “spot a trade” without proper learning over time if you have not traded these markets before.
Symbols and Symbology:
This is very broad. As the Euro is universally known as the “Eur/Usd”, and there is NO OTHER variation, the index markets really depend on your broker. I have made a little video below showing you how to find them on your MT4. Keep in mind you might have to hover your cursor over the new “unknown” instruments to you to get an explanation.
For example the Dow can be represented as “WS30″, or “DOW30″, or “DJ30″, or even “DJIA”. All those symbols in your MT4 could mean the exact same thing. It isn’t likely that you will have multiple versions on the same broker, but from one broker to another you might find a broad selection all representing the same index market. There is a chance that you could have both the spot market and the futures market on the same broker though. Contact your broker if you are unsure which you have, but most brokers for MT4 use the futures market. Explore that “market watch” window after you select “show all” after I show you in the video, you just might be surprised at the instruments you didn’t even know you had!!
Well, that’s enough to get started for now. Explore around, and pop up a chart or two. Keep an eye on things as you trade your forex this week. Try and notice when the index or indices you have chosen to explore get active. Pay attention to how they react around their native nation’s news. Start applying some technical analysis as you do with forex. Start with the higher timeframes, but try and watch the movement on the lower ones to get a feel for how they move.
I hope in 2015, I can turn you on to a new market you might not have considered before, giving you another tool in your trading arsenal and letting you diversify your trading. After all, forex doesn’t always move well. Heck, gold doesn’t always move well. But by having lots of choices in markets, you can surely find something to trade that IS moving well almost all the time. Index trading might just give you another option and another way to make great profits if you apply yourself properly to the process.
regards
Omar Eltoukhy
FINDING INDICES ON MT4 VIDEO:
http://youtu.be/2-6qpf4s0Ao>
Omar Eltoukhy
Trading Index Markets With MT4
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