Your Guide to Trading The DAX Index

In order to define the general state of a country’s economy and compare earnings from various investments, economists, merchants, and investors frequently use a country’s main stock index as a benchmark.

Stock index includes selected stocks typically based on market capitalization, and their worth is calculated as a weighted average of the stock’s prices. So when a country’s economy is performing well, and stocks rise, a stock index that’s tracking those stocks will also rise.

Likewise, if the stocks start to depreciate, the stock index will decline as well. There are various stock indexes worldwide, such as the S&P 500, Dow Jones, Nasdaq, DAX, Nikkei, and Hang Seng. For this discussion, let’s take a deeper dive into the DAX index.

So what is DAX Index, and where is it based? DAX, short for Deutscher Aktienindex, is the main stocks index in Germany. It comprises 30 leading German companies by market cap within the Frankfurt Stock Exchange, but this figure is being revised to 40 firms.

How Has The DAX Index Evolved?

The DAX Index was initially launched in 1988 as the DAX 30 with a base value of 1163. Roughly half of the Index’s original constituents are still partakers to date.

The DAX 30 originally used prices from the FSE (Frankfurt Stock Exchange). But in 1999, that changed, and prices began being obtained from the XETS or Xetra electronic trading system.

Over time Germany’s leading companies have become multinationals that earn revenue globally. These companies include Adidas, Allianz, Bayer, BMW, Daimler, Henkel, SAP, Volkswagen Group, among others.

Therefore, the DAX Index accounts for far more than Germany’s economy. Other the past couple of decades, numerous index-tracking components and derivatives based on the DAX have been rolled out. These components can now be exchanged around the world.

How Is The DAX Index Computed?

The DAX is calculated using the free-float approach, which means that it only considers the readily available shares and exempts untradeable shares such as those held by governments.

Similar to other blue-chip indices, the DAX is also prejudiced by market cap. As a result, companies with higher market caps influence its value by a more significant extent. Companies incorporated in the DAX index have a max weight of 10%.

DAX Index Trading Tips and Strategies

Some of the tips and strategies that can help you when trading the DAX index include:

  1. When trading the DAX Index, you must keep a comprehensive account of all your trades. Having records enables you to look back at the motives of entering the trade, your emotions at the time, the trade movement, and the result.
  2. You must be in a good place before you start trading. Don’t make emotional trades or just make a trade because you’re bored. Even an Index as detailed as the DAX won’t bring you any success if you’re distracted or fatigued.
  3. Don’t enter into any trade before a critical data release. Wait for the dust to settle and then make your move. Don’t assume that the data release will be in your favor.
  4. Prior to placing any trade, ensure that you have a firm stop loss in place.
  5. Trading trends using the DAX Index can be long-term or short-term. So, before you make a trade, start by identifying a timeframe that works best for your trade. For instance, it could be an hour, a week, a couple of weeks, a month, etc.
  6. Assess your technical analysis tools meticulously if you intend to use them to decide the DAX Index levels to trade. Also, ensure that you’re comfortable and don’t forget to establish your entry, exit, and stop-loss points.
  7. Prior to entering any trade, it’s advisable that you determine your risk-reward.

Final Thought

Trading can be a daunting prospect whether you do it full-time or partially, but there’s no reason why you can’t be successful. The DAX Index offers traders various commodities to trade alongside the ideal trading platform to help you unearth your strengths and weaknesses.

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