What any trader may experience in the global stock market is how it could transform into a labyrinth. Major U.S. indices, such as NASDAQ, S&P 500, and Dow Jones, are familiar to most investors, but not the same can be said about GER40 (DAX), JPN225 (Nikkei), and UK100 (FTSE) international indices. Each of these indices has its own set of economic factors influencing it, hence the trader must be aware of various nuances taking place in the intricacies.
Fortunately, one can engage in trading global indices if proper knowledge and tools are acquired. It is on these platforms that Vantage Markets provides a trader with multitudes of global indices, consequently providing the trader with the opportunity to further diversify their investment portfolios outside U.S. markets. The opportunity is great for those traders not based in or operating from the U.S. to explore these international markets and get a probable hold on trends inside them.
In this article, we will demonstrate exactly how some of the most famous world indices are traded—among them, GER40, JPN225, and UK100. We shall explore what is going on with these indices, how best you can trade them, and what tools are at your disposal to make that decision.
Understanding Global Indices
A global index is a benchmark showing the country’s or region’s performance in a particular group of stocks. Unlike individual stocks that are affected by company-specific factors, indices are driven by general economic conditions, geopolitical events, and market sentiment. Understanding its drivers is vital to trading global indices profitably.
GER40 – DAX (German Stock Market)
Economic Influence: The GER40, commonly referred to as the DAX, is the index comprising the 40 largest companies listed on the Frankfurt Stock Exchange. It derives, first and foremost, much of its performance from the health of Germany’s economy and the wider European economy. These would include GDP for Germany, monetary policy set by the ECB, and political currents that take over the European Union.
Trading Strategy: While trading the GER40, one would be interested in the economic indicators from Germany. If there is a strong GDP report or positive signals from the ECB originating in Frankfurt, it shall mean a bullish race. Technical analysis also plays a critical role as many traders try to find support and resistance levels, moving averages, and breakouts for identifying entry and exit positions.
JPN225 – Nikkei (Japanese Stock Market)
Economic Influence: The JPN225, or Nikkei, reflects the activities of 225 large companies listed on the Tokyo Stock Exchange. Japan itself has had slow economic growth lately due to low GDP growth and population decline, which may further affect the market’s movements. Other than that, the monetary policy by the Bank of Japan and trade dynamics with powerful economies like the USA and China will have a large impact on the Nikkei.
Trading Strategy: Although the most recent candlesticks are bearish, on the whole, the Nikkei has given its traders quite a few good up-trends recently. When trading JPN225, both technical indicators and macroeconomic data should be put into consideration. For example, if the Japanese yen depreciates, the Nikkei could be supported due to low-priced Japanese exports. Buy on pullbacks during bullish trends or short the market on breaks of key support levels.
UK100 – FTSE (UK Stock Market)
Economic Influence: The UK100, or FTSE, is made up of 100 companies with the largest market capitalization listed on the London Stock Exchange. The performance of the FTSE is thus pegged on the economic well-being of the UK, rates of interest that have been set by the Bank of England, and the value of the pound. Brexit-related developments and international situations in the economy also play a significant role in shaping the performance of the FTSE.
Trading Strategy: With a view to the UK100, one needs to watch out for the UK economic data—that is, GDP, inflation figures, and employment charts. A weakening pound may also support the FTSE since most of its constituent companies generate substantial earnings overseas. Similar to other indices, technical analysis in this case becomes imperative; traders often look for breakout opportunities or buy the dip during corrections.
Other Global Indices
- China (Shanghai Composite): The Chinese stock market has endured heavy and frustrating volatility in the markets during the past few years, largely due to ever-escalating tensions with the United States over trade and national economy problems. A trader of Chinese indices should keep himself very well updated on geopolitical events and the situation in China concerning its so-called economic policies.
- France (CAC 40): This index comprises the 40 most giant companies in France. Similar to what goes on with GER40, it portrays an essentially very strong support system for the broader European economy and the different policies of the ECB. Traders should track major economic indicators that come out from France and the EU, together with technical patterns, which include the modifications at support and resistance.
Technical Analysis of Global Indices
Technical analysis is an effective tool in helping traders highlight opportunities within the markets when trading global indices. Here are the key elements to consider in technical analysis:
- Moving Averages: Moving averages are one of the most popular indicators from which to read trends and probable reversal points. The 200-day MA can be used to determine the long-term trend. If the price of any index is trending above its 200-day moving average, that is considered an uptrend, and if it is really less than that average, then this could very well correlate with a downtrend.
- Support and Resistance Levels: The best way to spot key entry and exit points is through finding important areas of support and resistance. The support level is the area where the price tends to attract buying interest, which stops it from falling any more. On the other hand, a resistance level is an area where selling pressure usually comes in and stops the price from further going up.
- Breakouts and Retests: A breakout happens when price shifts beyond a key level of either support or resistance, indicating a high likelihood that the price trend will maintain that direction. A retest is a price that moves back to the breakout price point and continues that initial direction of the break. Traders look for retests as a sort of confirmation of the break before they enter a trade.
- Trend Lines: Use trend lines to gain a better feel for the direction general movement of the market in your charts. An upward-pointing trend line connects higher lows, while a downward-pointing one connects lower highs. Put simply, breaks of these trend lines could very well be an indication that a market reversal might take place.
Risk Management in Trading Global Indices
Global indices trading comes with risk, so it’s essential to apply risk management. Here are some tips on how to manage risk effectively:
- Position Sizing: Decide upon the position size to be used for every trade based on risk tolerance and account size. Never risk so much on one trade that places you at considerable risk in case of an adverse outcome.
- Stop Losses: Use stop losses to protect the capital. It is an order placed which will sell a position automatically if the price moves up or down to a level that you have chosen. It helps to cut losses if the market moves against you.
- Diversification: “Don’t put all your eggs in one basket.” That is, diversify your trades across different indices and regions. For instance, if one index goes bad, gains in another may help offset any losses.
- Economic Calendar: Monitor upcoming economic events and news releases that could most probably shake global indices. Central bank meetings, GDP reports, or geopolitical events can be the cause of substantial market volatility.
Conclusion
Diversify your portfolio and benefit from international economic trends by trading global indices such as GER40, JPN225, and UK100. Now, with in-depth knowledge of unique factors influencing each index, use technical analysis in spotting trading opportunities and put in place effective risk management strategies so you can sail through all the complexities involved in trading global indices with great confidence. Be it DAX of Germany, Nikkei of Japan, or FTSE of the UK, it is the well-informed approach that ensures success in trading global indices.
If you are ready to track global indices trading, then do so by using a platform like Vantage Markets, which offers access to a wide range of indices from across the globe. With the right tools and strategies, you can navigate these markets and get the most from them.
