Dow Jones Futures Strategy (Backtest)

Last Updated on November 28, 2022

Individual stock investments can provide a lot of profit, but the downside risk is significant as well. As a result, investors go for equity indexes, which spread their risks across many stocks, and one easy way to trade indexes is via futures. The Dow Jones Industrial Average (DJIA) — a benchmark that measures the performance of 30 blue-chip companies in nine different industries in the United States — is one of the most popular equity index futures. What is a Dow Jones futures strategy?

A Dow Jones futures strategy is the methodology or technique you can use to profitably trade the DJIA futures market. DJIA futures refer to financial derivative products that represent a contract to buy or sell a specified amount of the Dow Jones Index on a future date, at a pre-agreed price. The contract trades on the CME platform and is cash settled.

In this post, we answer some questions about the Dow Jones futures strategy and we make a backtest

What are Dow Jones futures?

Dow Jones futures are futures contracts in which the underlying asset is the Dow Jones Index. A futures contract represents an agreement to exchange a specified amount of the underlying on a future date, at a pre-agreed price. In the case of cotton futures, that amount can be $25, $10, $5, or $0.5 multiplied by the value of the DJIA for the Big Dow Futures, DJIA Futures, E-Mini Dow Futures, and Micro E-Mini Dow Futures respectively. The contracts trade on the CME Globex platform, and they are cash settled.

The value of DJIA is used as the reference point for calculating the contract size of Dow Jones futures. The higher the index value, the bigger the contracts get. The E-mini and micro E-mini contracts were created to make the Dow Jones futures more accessible to retail traders, as the Big Dow and DJIA contracts were getting too big even with huge leverage.

Trading Dow Jones futures are essentially placing a bet on whether you think the DJIA’s price will increase or decrease at a specific point in the future. You can buy the futures contract or go long if you think the DJIA’s price will rise or short the contract if you think the index would decline. Whichever direction you take, there is a counterparty on the other end of the trade. At the end of the day or at settlement, the exchange debits the wrong party’s account and credits the account of the one who made the right prediction.

What is a Dow Jones futures strategy?

A Dow Jones futures strategy is a set of methodologies and techniques you can use to profitably trade Dow futures. It may include fundamental analysis alone, technical analysis alone, or a combination of both. Your strategy helps you to time the market for your trade entries and exit while using the right position sizing and risk management techniques to manage risks.

If you want to trade futures successfully, you must have a good trading strategy with precise entry and exit signals, as well as reliable risk management techniques.

Dow Jones futures strategy backtest

A backtest with strict trading rules, settings, statistics, and historical performance is coming soon.

What is the seasonality of Dow Jones futures?

Simply put, seasonality in trading refers to the observable patterns that an asset’s price tends to follow during specific times of the year. Seasonality, which is also known as the market cycle, is typically observed over longer time frames, like months.

According to the DJIA’s seasonal outlook, the period between March and June tends to have stellar performance. In the past, it won 7 out of 10 times, yielding an average return of 187.93% over a 10-year timeframe. The chart below shows a monthly seasonal performance of the Dow Jones Average:

Source: EquityClock

What moves the Dow Jones — What affects the Dow Jones the most?

The Fed’s rate decisions, the GDP, the unemployment rate, retail sales, the PMI for services, the Nonfarm Payroll (NFP), the PMI for manufacturing, and earnings announcements are just a few of the economic and company reports that have an impact on the Dow Jones futures.

Other noteworthy occurrences resulted from election-related political activity, civil unrest, and wars. The performance of the individual stocks in the index also affects it.

How are Dow Jones futures traded?

The various contracts of the Dow Jones futures trade on the CME Globex exchange. The four different contract sizes of the Dow future include:

  • The Micro E-mini Dow futures: $0.5 x DJIA value
  • The E-mini Dow futures: $5 x DJIA value
  • The Dow futures: $10 x DJIA value
  • The Big Dow future: $25 x DJIA value

Dow Jones futures trade on the CME platform from Sundays to Fridays, from 6:00 p.m. to 5:00 p.m. ET (New York Time) the next day. There is a 1-hour break before the start of the next trading day (5:00 p.m. – 6:00 p.m. ET) from Monday to Thursday.

There are quarterly contracts (Mar, Jun, Sep, Dec) listed for 4 consecutive quarters. Trading terminates at 9:30 a.m. ET on the 3rd Friday of the contract month. The contracts are all financially settled.

How do you start trading Dow Jones futures?

To start trading Dow Jones futures, you have to open an account with a futures broker which can grant you access to the exchange where the contracts are traded. Your broker also serves as your clearing partner on the exchange. After opening an account, you fund it with an amount greater than the required initial margin. You don’t need to have the full worth of a contract to trade it since they are leveraged instruments.

Another way to trade Dow futures is via a CFD broker that offers CFDs on Dow futures, such as IG. In this case, you are not trading with the exchange; instead, you are in a contract with the CFD broker to exchange the price difference between trade open and close.

What is the Dow Jones trading at?

As of November 23, 2022, the Dow futures were trading at $34,190.06.

The price of the Dow changes from time to time, therefore the quote above may be different by the time you are reading this post.

What’s the Dow Jones futures hour?

On the CME Globex platform, the trading hours for the Dow Jones futures are from Sunday 6:00 p.m. to Friday 5:00 p.m. ET. There is a daily maintenance period from 5:00 p.m. to 6:00 p.m. ET, Mondays to Thursdays.

Where can I find trading charts?

There are many charting platforms in the market for you to choose from. A popular charting platform is TradingView, which offers a lot of chart tools and even the chance to create your own technical indicator. Most of the features listed above can be enjoyed for free though they have a premium version that offers a lot more.

Another charting provider that is worth mentioning is Barchart, which offers quite some free tools and the chance to use the commitment of traders. There is also Yahoo Finance.

The chart of Dow can also be accessible on the CME platform.

What are the trading symbols for Dow Jones futures?

The trading symbols are as follows:

  • The Micro E-mini Dow futures: MYM
  • The E-mini Dow futures: YM
  • The Dow futures: DZ
  • The Big Dow future: DD

What is the specification for the Dow Jones futures contract?

The contract sizes are as follows:

  • The Micro E-mini Dow futures: $0.5 x DJIA value
  • The E-mini Dow futures: $5 x DJIA value
  • The Dow futures: $10 x DJIA value
  • The Big Dow future: $25 x DJIA value

The price quotation is in USD and cents per index point. The minimum price fluctuation is 1.0 index point, but the tick value varies with the contract size.

There are quarterly contracts (Mar, Jun, Sep, Dec) listed for 4 consecutive quarters. Trading terminates at 9:30 a.m. ET on the 3rd Friday of the contract month. The contracts are all financially settled.

Why should you start trading Dow Jones futures?

You can use the Dow Jones futures to hedge your position in the equity market. Most institutional investors use this approach. But the more common reason for traders is to speculate on the direction of the index and profit from price fluctuations. Since futures allow you to trade on margin, you can potentially make more profits trading it than trading Dow ETFs on the equity market.

What is the contract size?

The contract specifications of the Dow futures can be divided into three as seen on CME websites. The E-mini, DJIA and Big DJIA futures.

In the E-mini Dow, one contract is equivalent to $5 multiplied by the index current value, meaning that each index point is worth $5 per contract.

In the Dow jones futures contract, one contract is equivalent to $10 multiplied by the index’s current price, meaning that each index point is worth $10 per contract. One contract on the Big Dow is $25 per contract, so an index is worth $25 per contract.

There is also the micro E-mini contract size which is equivalent to $0.5 multiplied by the value of the index.

What is the tick size?

The tick size of the full contract of the Dow futures per tick is $10 per contract. For the micro contract size, the tick size is $5. The tick size of the Big Dow is $25, while that of the micro E-mini is $0.5.

What is the minimum price fluctuation for Dow Jones futures?

The minimum price fluctuation of the Dow Jones is 1.0 index point.

Are there any ETFs?

There are a few, including the ProShares Ultra Dow 30 (DDM) and the SPDR Dow Jones Industrial Average ETF Trust (DIA). Currently, DIA is the only non-leveraged, non-inverse, US-traded ETF that tracks the Dow. DDM is a leveraged ETF that seeks to outperform the Dow daily.

What factors affect Dow Jones prices?

The US interest rate, inflation data, unemployment report, nonfarm payroll, manufacturing PMI, housing data, and other economic news releases that affect individual stock prices are among the economic factors that influence Dow Jones. The price of the index is somewhat influenced by the company earnings of the component stocks as well.

The stock market is extremely sensitive to economic uncertainty, so any news, whether it is positive or negative, will cause a market reaction that will reflect the sentiment of investors and speculators at the time.

What is the all-time high for Dow Jones futures?

The Dow futures have historically reached an all-time high of 36,952.65 points on January 5, 2022.

What are the biggest risks in trading Dow Jones futures?

When trading any type of futures, the biggest risk comes from adverse price movement. Given that futures contracts are leveraged, adverse price movements can lead to huge losses. For example, if you trade with a 20x leverage, a 1% negative movement results in a 20% loss in your account, while a 5% adverse price move would wipe out your account completely.

What is the settlement method?

The Dow futures are cash-settled.

What is the settlement procedure?

The settlement is by cash to the special opening quotes of the index on the day of final settlement which is normally the third Friday of the contract month.

What is the block minimum for Dow Jones futures?

There is no block trade eligibility for this contract.

What is the difference between Dow Jones futures and the Forex instruments for the Dow Jones?

The main difference between Dow futures and other forex instruments for the Dow is that futures prices are priced into the future, whereas forex instruments usually follow the spot price. Moreover, Dow CFDs or US 30 CFDs leave you at the mercy of the CFD broker.

Which forex instrument is the same as Dow Jones futures

US30 CFD or Dow 30 CFD, depending on what the CFD broker chooses to name it.

What are some important dates for this market?

  • The Dow’s all-time high at market close in early 2022 is 36,799.65 points, set on January 4, 2022.
  • The Dow reached its all-time high on January 5, reaching 36,952.65 points at one point.
  • On November 23, 2020, the Dow finally surpassed 30,000.
  • The DJIA suffered the greatest cumulative loss during the Great Depression when it lost nearly 90% of its value between 1929 and 1932.
  • The largest single-day percentage drop occurred in October 1987; the largest single-day point drop occurred in March 2020.

What is the highest Dow Jones has ever been at — its all-time high?

Historically, the Dow futures reached an all-time high of 36,952.65 points on January 5, 2022.

What is the lowest Dow Jones has ever been — its all-time low?

The Dow futures reached an all-time low of 41.22 points in 1932.

Similar Posts