US Tech 100, also referred to as NASDAQ 100, is a modified market-capitalization-weighted index that comprises the 100 largest non-financial firms listed on the NASDAQ stock exchange.
How Does Tech 100 Compare to Other Indices?
If you are a new trader considering trading US 100 stocks, one of the questions at the back of the mind might be, “How does NASDAQ 100 compare to USA 500 and Dow Jones?”
The three indices are used to track the performance of the top firms in the US market. Therefore, trading on their listed stocks provides investors with better diversification. However, they are all impacted by individual companies’ performance and broader economic factors. Here is a broader comparison:
1. US30 (Dow Jones)
USA30, also referred to as Dow Jones Industrial Average was developed in 1896 by Charles Dow. It is a price-weighted index used to track the largest 30 companies traded on the New York Stock Exchange (NYSE) and NASDAQ.
When DOW was launched in 1896, it only comprised 12 companies that were involved in Industrial activities. However, this has changed so much over time as companies in other sectors, such as health, technology, and retail also made it into the list.
Because the index is price-weighted, stocks with higher prices tend to have a bigger weight than those with a lower share price. To calculate the index today, the listed 30 stocks’ prices are added together and then divided using the Dow Divisor. The divisor is used to provide a counteracting effect of structural changes, such as stock splits. In 2018, the divisor was 0.14748071991788.
2. USA 500
The S&P 500 index, also known as USA 500, was developed in 1957 by Standard & Poor’s and comprised of the 500 largest firms listed on NYSE and NASDAQ. Unlike Dow Jones that focuses on stock prices, the S&P 500 tracks firms’ market capitalization on its index. The index factors liquidity, sector classification, financial viability, and public float in addition to market capitalization.
The S&P 500 is well diversified in different sectors, but the technology sector had the highest percentage by the close of 2020. Some of the USA 500 include Apple, Microsoft, Amazon, Johnson & Johnson, and Visa Inc.
3. US Tech 100
This is the youngest of the three indices because it was created in 1985. Like the name suggests, the index tracks the 100 biggest non-financial stocks listed on NASDAQ. Like USA 500, the NASDAQ 100 is based on market capitalization, and it is aimed at assessing the health of the tech sector. Some of the top companies listed on Tech 100 include Apple Inc, Amazon, and Tesla.
Individual stocks’ performance significantly impacts both NASDAQ 100 and Dow because many of their values are derived from the top 10 listed stocks. However, USA 500 is more diversified.
When it comes to volatility, Dow is the least volatile of the three because the listed blue-chip firms are slow-moving. US tech 100 is more volatile than Dow because of greater exposure to fast-growth tech stocks. USA 500 falls in between the Dow and NASDAQ 100 on volatility.
Trading Tech 100 Stocks
If you are a new trader targeting speculating the tech industry’s growth, trading US TECH 100 can be an interesting idea. As one of the most followed indices globally, there is a lot of information that you can use for trading insights. The following are some of the common strategies you can use to trade US TECH 100.
- Swing Trading Tech 100
This strategy involves trading on both sides of the market movement of the selected Tech 100 stock. Traders use this strategy to buy stocks when anticipating that the market will rise or sell when expecting the price to shift downwards.
When using this strategy, traders take advantage of stock oscillations as the price shifts back and forth on the trading chart. It is a purely technical approach achieved by studying the trading charts and individual movements compared to the bigger trend.
To successfully use this strategy, it is important to focus on interpreting the length and duration of every swing because the two components determine the levels of support and resistance. Furthermore, swing trading Tech 100 requires you to be timely in identifying trends when markets experience shifts in the levels of demand and supply. When monitoring trades, traders also analyze the momentum of each swing.
The most notable advantage of swing trading strategy is that you might get to enjoy many trading openings.
- Day Trading NASDAQ 100
Day trading is another common strategy preferred by people who like to remain active the entire day. Because it requires you to be on the lookout during the day, some people who use the strategy consider it a full-time profession.
Traders using this strategy take advantage of price fluctuations between the opening and closing hours. A trader may hold different positions in a day, but they are all closed before the end of the day to lower the risk of overnight market volatility. To trade lucratively using this strategy, it is prudent to have a well-organized trading pattern that allows rapid adaptation to market movements.
Some notable benefits of day trading include:
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- Comes with limited intra-day risks.
- You can avoid overnight risk.
- You get to enjoy better time flexibility.
- There are many opportunities for multiple trade opportunities.
Although there are many advantages of using a day trading strategy, it is prudent to be disciplined and adopt robust risk management strategies.
If you plan to start trading tech 100, it is important to understand its background and how different fundamentals affect it. You should also adopt a good strategy, such as day trading or swing trading, that we have brought out in this post. Because Tech 100 targets the best 100 stocks, you might also want to include platinum trading to diversify your portfolio.
No matter the strategy you select, it is crucial to analyze your progress to note critical strengths and weaknesses regularly. Then, institute changes to improve your strategy.
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