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How can TA work with an Index?


Guest JSS

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Hello everyone!

I am fairly new to trading but am starting to pick up a thing or two. Have focused a lot of time on learning TA which has proven to workout pretty well.

One thing that I do not understand about TA and when it comes to trading an Index is: How can an index follow the "patterns" (if you so may) of TA since as I understand it an Index such as the "OMXS30" for instance is just a collection of a bunch of different stocks that are not bought or sold. It makes perfect sense when it comes to currencies as then there are actual trades going on and I understand how market psychology will affect.. But then again, how can an Index follow the "patterns" of TA when it is not dependent on people buying or selling an underlying asset but rather dependent on stocks that are "out of the index control", if that makes any sense.

Very much looking forward to an answer!

Thanks,

J

Edited by JSS
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32 minutes ago, JSS said:

Hello everyone!

I am fairly new to trading but am starting to pick up a thing or two. Have focused a lot of time on learning TA which has proven to workout pretty well.

One thing that I do not understand about TA and when it comes to trading an Index is: How can an index follow the "patterns" (if you so may) of TA since as I understand it an Index such as the "OMXS30" for instance is just a collection of a bunch of different stocks that are not bought or sold. It makes perfect sense when it comes to currencies as then there are actual trades going on and I understand how market psychology will affect.. But then again, how can an Index follow the "patterns" of TA when it is not dependent on people buying or selling an underlying asset but rather dependent on stocks that are "out of the index control", if that makes any sense.

Very much looking forward to an answer!

Thanks,

J

An index is a market that sets out to track or mimic the performance of a basket of constituents stocks but is not tied to them directly. The index is a market in it's own right and behaves as directed by the market participants, the buyers and sellers of the index, not the constituent stocks.

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Thanks for the replies.

I had no idea that an index/indice is an actual market on its own and that it mimics a "basket of stocks".

Another question in regards to this then, why buying an asset as an indice? I understand why I buy a cfd contract using an indice as an underlying asset as I'm speculating on the market going up or down and by doing so hopefully making some money.. But if you then, as I understand you can, why buy the indice directly? As I can buy a stock directly.. I don't see any direct value in owning the "rights" to an indice..

Starting to understand that one might not want to seek to much logic in this "industry" but interesting to understand why people buy what they do.

 

Thanks again for the replies..

Edited by JSS
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2 hours ago, JSS said:

Thanks for the replies.

I had no idea that an index/indice is an actual market on its own and that it mimics a "basket of stocks".

Another question in regards to this then, why buying an asset as an indice? I understand why I buy a cfd contract using an indice as an underlying asset as I'm speculating on the market going up or down and by doing so hopefully making some money.. But if you then, as I understand you can, why buy the indice directly? As I can buy a stock directly.. I don't see any direct value in owning the "rights" to an indice..

Starting to understand that one might not want to seek to much logic in this "industry" but interesting to understand why people buy what they do.

 

Thanks again for the replies..

that's right, you can't actually buy the index, you can only buy the leveraged derivative such as a cfd, spread bet or option on futures which is based on the underlying index.

Edited by Caseynotes
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