Is this market better than forex?

Last Sunday, I got up at 5am, drove to a spot on the river Thames near Henley and swam for a mile.

The tranquility of the sunrise over the Thames was broken only by the 100 or so other swimmers thrashing and gasping for breath alongside me. But still, it was quite a magical place to be.

It’s not often that I see the wrong side of 6am these days.

There was a time when I’d creep out of bed at 5.30am each morning, just as the central heating was ticking on, cunningly negotiate the creaking floorboard at the top of the stairs so as not to wake the baby, brew myself a cup of tea, and settle in front of my screen, ready to catch the forex market before breakfast.

However, these days, more often than not, I prefer to leave the dawn chorus to the birds, and to the commuters tramping their way to the railway station.

My wife thinks that I’m getting soft in my old age, but I prefer to think that rather than working harder – I’m working smarter!

That’s the thing with trading – it might be a 24-hour game, but not each of those 24 hours is equally profitable.

For forex trading – if you want the best shot at it, you really need to be trading the London session at 6am. It’s where the best moves are happening, and where the most money is to be made.

Fortunately, for those of us who enjoy our sleep, and like to grunt at our kids over their cornflakes before they leave for school, there are other options …

Trading sociable hours

While many of us as traders have our heads turned by the volatility and excitement of the forex markets, it’s easy to forget that there is an old-fashioned index (in fact, the oldest of the lot) that enjoys big moves, keeps sociable hours, and is cheap to trade …

I’m talking about the Dow Jones.

The Dow Jones Industrial Average Index, or Wall Street Index, is comprised of the 30 top companies in America.

Charles Dow first came up with this list of companies back in the late 1800s. His first index consisted of just 12 companies, and the Dow Jones Industrial Average, was the sum of the prices of those 12 companies, divided by 12.

These days, the Dow Jones is made up of 30 companies, and the sum to calculate the average price is a little more complicated.

But the principle is the same.

Unlike London’s FTSE 100 index, which selects its 100 companies based on market capitalization, the Dow Jones is judged on broader criteria, like reputation and investor appeal. Decisions about who’s out and who’s in can be contentious.

(Despite the sale of the Dow Jones Indexes to CME last year, the editor of the News Corp-owned Wall Street Journal still has a say in which companies are included. Another thing that Rupert Murdoch has a hand in – but let’s not get into that!)

How to avoid out of hours costs

Let’s get back to why the Dow can be very profitable – and very convenient – to trade.

As we’ve established – even a 24-hour market like forex has optimum trading times. And the best action on the Dow Jones index is around the time that the US market is waking up.

On this side of the Atlantic – that means lunchtime.

But, if we’re getting in on the US market before they’ve opened – surely that means there will be extra costs involved for out-of-hours trading?

Right?

Wrong!

That’s where we really do score with the Dow Jones.

Although the market is officially only open from 9.30am – 4pm (Eastern Standard Time) – in reality, there is no down time on the Wall Street index.

The reason for this is that most spread betting firms will increase the spread that you pay if the underlying market is closed. They can’t hedge your position in the real market, so are charging you for the extra risk that’s involved for them.

With the Dow Jones, the Globex futures market is open nearly 24 hours – which means that there is always a price available.

Hence, the low cost on spreads for the Dow Jones around the clock.

Over the years, I’ve learned that saving a few points on your spread can make all the difference to the profitability of a trading strategy. It can make winning significantly easier, and should ramp up your success rate.

My favourite Dow trade

I’ve been a big fan of the Dow Jones for many years – it offers the kind of sizable moves that you find on the early morning forex markets (without having to get up at 5.30am). Plus, it’s a very cost-efficient market to be moving in.

This year, my Dow trading has become very pared down, focusing on a particular trade that takes advantage of the optimum trading time on the US market.

I’ve been running extensive tests on this trade in recent months, and hope to pass on full details to you very soon.

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