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As a barometer of the times, the Dow Average has the great strength of continuity. Other averages may be mathematically more sophisticated, but the Dow has been tended with great care for a hundred years now. So only the Dow Jones Industrials show the sweep of the century, reflecting not only the market but economic and social history.
Roughly two-thirds of the DJIA's 30 component companies are manufacturers of industrial and consumer goods. The others represent industries as diverse as financial services, entertainment and information technology. Even so, the DJIA today serves the same purpose for which it was created – to provide a clear, straightforward view of the stock market and, by extension, the U.S. economy.
The 30 stocks now in the Dow Jones Industrial Average are all major factors in their industries, and their stocks are widely held by individuals and institutional investors. As of December 31, 2008, The Dow® represented 27% of the float-adjusted market capitalization of the Dow Jones U.S. TSM Index, which provides near complete coverage of the U.S. stock market.
Using such large, frequently traded stocks provides an important feature of the Industrial Average: timeliness. At any moment during the trading day, the price of the Dow Jones Industrial Average is based on very recent transactions. This isn't always true with indexes that contain less-frequently traded stocks.The Dow Jones Industrial Average is the most-quoted market indicator in newspapers, on television and on the Internet. Because of its longevity, it became the first to be quoted by other publications. This practice became habit when Wall Street earned at least a mention in the general news each day, and habit became tradition when the post-World War II bull market commanded the nation's attention. The Industrial Average became the indicator to cite if you were citing only one. Besides longevity, two other factors play a role in its widespread popularity: It is understandable to most people, and it reliably indicates the market's basic trend.
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Technical Indicators
Technical analysis is the study of market action, primarily through the use of charts, for the purpose of forecasting future price trends. Technical analysis can be used to optimize buy/sell timing. There are a lot of different indicators or charts available, however, we focus only on those, that recommended by Phil Town in his book "Rule#1". Phil Town calls it "The Three Tools".
In general (oversimplified):
- Moving Average - When the price line crosses above the moving average line, buy. When the price line crosses below the moving average line, sell.
- Stochastics - Buy line crosses up, buy. Buy line crosses down, sell. When the Stochastic line crosses up through the 20th percentile it is a positive signal, and when it crosses down through the 80th percentile it is a negative signal.
- MACD - Beggining of a mountain, time to buy. Beginning of a valley, time to sell.
- Buy or Sell when all three charts are agreed. When all three Tools are saying "buy", it is time to get in. When all three are saying "sell", it is time to get out.
 Read more about Technical Indicators in the Theory section.
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