In order to maximise your chances of success when trading indices, it is advisable to research the relevant market sectors by examining the index’s component parts in order to gain a better understanding of the ways in which the value of an index may be influenced.
It is important to have an understanding of an index’s relationship to currency rates as there is usually a correlation between the relative strength of a country’s currency and the value of its domestic indices. For example, there is a tendency for the value of American indices to increase in parallel with the demand for US dollars.
It is also advisable to study the movements of commodities that may affect the value of the index you are trading. Although correlations may fluctuate from day-to-day, over the long term, strong trends tend to occur so searching and analysing these patterns could help you make better trading decisions.
Finally, you should look out for changes to index listings due to factors such as market capitalisation and mergers and acquisitions.