Mini Dow trading strategies have become very popular now with the creation of the mini-contract on the Dow Jones Industrials Index, also referred to as the "Dow". The Dow is contracted of 30 publicly traded US companies across a diverse segment across the US business landscape and is one of the "Big Three" indices that are watched along with the S & P 500 and NASDAQ among investors and Wall Street. In addition to being closely followed, the Dow is popular among traders who specialize in trading index futures because of high liquidity and fast-moving price action especially with the creation of the "mini Dow" which is a smaller-sized futures contract that is 1 / 10th the size of the regular Dow futures contract. This opens the index futures market for smaller private traders although many of these types of traders who are attracted to the opportunities in the Dow lack an understanding of how it's price action develops as well as a proper trading strategy to take advantage of how the Dow trades in order to profit on a consistent basis.

Fortunately, having an understanding of 3 basic types of price movement that exist within the mini Dow can help you design a workable approach to trade profitably in this market. The 3 types of price action are trends, breakouts, and support / resistance.

First, trading trends is the cornerstone to successful trading as evidence by the common trade maxim, "the trend is your friend". The reason why you want to trade trends can be summed up by Newton's First Law of Physics that states, "An object in motion remains in a state of constant velocity without acted up by an external unbalanced force". A mini Dow trading strategy that is based on following trends will find that when a trend forms it tends to move steadily in a given direction until something causes it to either stop and form a trading range or reverse price but, until that point, the mini Dow will steadily stay in whatever current course its traveling.

Breakout trading is the most explosive of the 3 mini Dow trading strategies and can quickly make huge profits in the shortest span of time. When price action is trading back and forth within a tight trading range, if a sufficient number of orders are placed, then the increase trading volume can result in price exploding out of that price range and take off in a given direction simultaneously as trade volume spikes higher. Trade volume is like rocket fuel for price in much the same way as a rocket holds inert on the ground until a tremendous amount of fuel generates enough force to put that rocket into motion, propelling it higher. It is then trade volume and the amount generated that is the key factor in trading breakouts in the mini Dow and can lead to large profits if timed properly.

Finally, trading support and resistance levels has been one of the most reliable approach for the mini Dow trading and is practiced by spotting trading ranges in its price action and then identifying the price points which act as support for conducting long entries and resistance price points for placing short entries. Trading ranges are formed when there are not enough buyers or sellers to take control of the mini Dow's trend and result in a back-and-forth motion in price. Price reverses from these two price levels because there are sufficient number of traders at this level that are holding fast onto their positions and force price back in the opposite direction. Until enough trade volume enter the price range in a sufficient amount in either direction, price will not trend or breakout and remain in a trading range where you can trade between support and resistance until something forces it out of this contracted price range.

These 3 trading strategies are all based on the ability to use price action to spot the ideal points in the mini Dow market and the way to train yourself to quickly identify them at a glance is to spend time studying price charts. Through repetition, and by spending time studying price charts and the mini Dow's price action, you will train the visual cortex of your mind, the part of your brain that is responsible for pattern recognition, to instantly recognize the patterns as they begin to form. This can give you a huge competitive advantage over other traders as well as help you understandably understand which strategy to apply where others may only see an unrecognizable price lines, give you the opportunity to make more profitable entry points and time your exports with greater precision.

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Source by Billy Williams