AEX Index Guide - Tips and Investment strategies
Have you heard of the AEX index? Perhaps you have, but you don't know anything else about it. If so, you're in the right place. Which companies are included in it? Which sector does it represent? Where is it located? In this article, I'm going to discuss all the characteristics and investing strategies related to this index which serves as one of the many thermometers of Dutch and European economies.
The AEX Index is a popular trading and investment instrument. Many international investors choose AEX investing to take advantage of the developments in the European market.
The AEX 25 is one of the most traded European stock market indices. Its liquidity makes the AEX suitable for the application of different trading styles and strategies.
The AEX index website offers basic fundamental information on this important index. However, this article will offer the defining characteristics of the index and the most important points that you should consider to get started investing in the AEX.
Table of Contents
- AEX Index Amsterdam
- Composition & conditions for inclusion
- What is index investing/trading?
- Trading with CFDs
- Investing vs trading - Swing trading
- Day trading the index
- Scalp trading the index
- Hedging with the index
- Risk Spread on the index
- Historical price development of the index
- Investing in the index vs individual shares of the index
- Fundamental Analysis, Technical Analysis or Both?
- Investment strategies & analysis for different trading forms on the index
- Technical analysis trading strategy - Applying the Moving Average Indicator
- Technical analysis trading strategy - MACD Indicator
- Technical analysis trading strategy - Combination EMA & MACD
- Short term index investment strategies
- Trading the index
- Index Trading Software
- Benefiting from a bullish price development on the index
- Benefiting from a Bearish AEX Price Development
AEX Index Amsterdam
The AEX 25 is the indication for the Amsterdam Exchange Index. The stock market index is composed of the 25 largest listed Dutch companies and consists exclusively of companies listed on the Euronext stock exchange in Amsterdam.
Euronext Amsterdam includes the AEX index as well as various indices such as AMX and the AScX; Within the available indexes, the AEX 25 is the most popular instrument for trading and investing.
Another related index is called the AEX volatility index (VAEX). It measures the expectation of volatility in the AEX in the next 30 days. The index is determined by assessing option prices for the AEX.
Source: AEX25 CFD, Graph W1, MT5 Admiral Markets Supreme Edition, January 23, 2019 - Technical Analysis AEX: Past performance is no guarantee of future results
The AEX index is a market capitalization weighted stock index. This means that the selected companies and potential candidates are ranked based on the value of their trade turnover. Moreover, companies must meet strict conditions to be included in the prestigious AEX.
The AEX index constituents are reviewed four times a year in interim assessments. These interim quarterly reports take place in June, September and December. The status of all AEX companies is determined in March by way of an integral, annual review. During this annual review, the 23 companies that showed the highest trading turnover in the previous year are automatically added to the index.
Candidates for the remaining 2 quotations are selected from the companies occupying positions 24-27. Preference is given to companies that are already part of the AEX 25 Index. The other two companies, together with 23 others, represent the so-called mid-cap AEX companies and are included in the AMX index. DE AScX represents the small-cap AEX shares, which hold position 51-75 in the overall index.
Composition & conditions for inclusion
The Euronext AEX index composition varies and can change based on the performance and structuring of companies. This also applies to the AEX index weights, or the weighting of AEX shares. The weighting of the AEX shares can even differ daily, as price changes affect the weighting percentage. Companies that are not (yet) included in the main index can also influence the weighting. With the IPO of Fintech giant Adyen, the market capitalization of no less than 11 of the 25 AEX companies diluted.
In addition to the set moments for recalculation, interim adjustments can be made. This may be the case if the valuation of one or more AEX companies changes significantly, for example as a result of a super dividend payment or if AEX shares disappear, due to takeover or bankruptcy. Another hard condition that companies must meet to qualify is that at least 25% of a company's available shares must be available as freely tradable shares.
This dynamic makes investing in the AEX very interesting. The price reflects the performance of the 25 largest companies on the Amsterdam stock exchange. The investor can thus benefit from a degree of liquidity and volatility unprecedented for individual stocks.
AEX Investing/AEX trading therefore lends itself to different styles and strategies.
What is index investing/trading?
AEX investing, or AEX trading, involve speculating on price changes in the Amsterdam stock index. As with any form of trading or investing, this involves some degree of risk. As a newbie investor, it is recommended that you experiment with different styles and build familiarity with the dynamics of the index.
Admiral Markets offers free demo trading accounts that allow you to practice risk-free. If you want to experience a real trading environment, but without risking any money, you can sign up for a free demo account with Admiral Markets by clicking the banner below. Zero-risk trading with real market data:
There are several ways to approach AEX investing. First, let's highlight the basic elements of AEX trading.
Trading with CFDs
CFDs (Contracts for Difference) allow you to invest in securities such as the AEX. Using this construction, you can trade both upward and downward price trends. This means that you can apply very different trading strategies. Depending on what your technical analysis of the AEX shows, you can place both 'long', or buy, positions and 'short', or sell, positions on the index. Moreover, CFD contracts are not time-bound, so you are not limited to short-term trading, but can also opt for longer-term forms of trading, also referred to as investing AEX and investing in AEX.
We will discuss further in this article how to place long and short AEX trading orders respectively. First, let's take a look at some different AEX investor strategies.
Source: AEX25 CFD, Chart Weekly, MT5 Admiral Markets Supreme Edition, January 28, 2019 - Technical Analysis AEX - Past performance is no guarantee of future results
Investing vs trading - Swing trading
Swing trading is a trading style that lies between short-term AEX trading and long-term investing in the AEX. Swing trading can be defined as medium term trading. The swing trader holds his position for more than a day, but this can take up to weeks. In terms of style, swing trading most closely resembles longer term trading, except that the swing trader is looking for shorter market movements.
The swing trader scans multi-day swing trading chart patterns in an attempt to take advantage of larger price movements or swings. The time frames used in swing trading can vary widely. The fact that swing trading is not tied to a specific time scale means that swing traders have the freedom to use many different trading methods.
Swing traders are also free to focus on the trend and focus on movements in the direction that has the most probability of long-term continuation. These traders also have a lot of freedom in terms of preparation. They can take advantage of a combination of AEX technical analysis and fundamental analysis, in an attempt to arrive at the most accurate price predictions.
Later in this article, we will discuss in more detail the fundamental and technical analysis of AEX.
Another telling advantage is that while short term trading is reasonably time consuming, swing trading requires less time and attention. Swing trading is in that sense comparable to investing in AEX or AEX investing. Swing traders don't have to spend all day behind their screens. After they have completed their analysis, they need to constantly monitor the course. Depending on the chosen time frame, it may be sufficient to check the price development once or twice a day. Swing trading can, thus, easily be combined with a full-time job or other activities.
Source: AEX25 CFD, Graph D1, MT5 Admiral Markets Supreme Edition, January 23, 2019 - Technical Analysis AEX - Past performance is no guarantee of future results.
The graph above shows the development of the AEX price on the D1 (daily) time frame. This means that each bar represents the price change within one trading day. The AEX stock exchange opening hours correspond to normal office hours. The index is active from Monday to Friday between 9 a.m. and 5.30 p.m. With Admiral Markets, you can trade the index between 09:00 and 23:00 CEST. Each bar on your D1 AEX trading chart, therefore, represents one of these five trading days.
A swing trader insists on trading in the 'swings' of the market. Technical analysis seeks to pre-identify support and resistance levels where market tops and market bottoms could form. These points are marked in our example by the yellow boxes.
Usually, those who invest in the AEX index NL through swing trading will hold their positions for at least 3-5 days before collecting their profits or losses. However, this is obviously highly dependent on the chosen execution time frame and trading style.
Are you interested in investing in the AEX stock index? Then you will usually opt for a higher timeframe and a trend following approach. In this case, you will hold your position until the next important structure level is reached. Swing trading generally strives for higher returns. To this end, the investor chooses the movements with the highest probability; the movements in the direction of the general price development.
As mentioned, swing traders usually check their charts at the end of the trading day to check whether the price development is in line with the findings from their technical analysis.
Day trading the index
Day trading is a form of trading where traders open and close positions within the trading day. They are, therefore, also called intraday traders. Now that the index includes some of the largest listed companies in Europe, the price generally shows enough movement within the trading day. This degree of volatility makes this index a popular instrument among day traders.
Day traders will often take several positions in a day but generally close them before the end of the trading day. Day trading usually bets on smaller returns than with longer-term trading styles. For that reason, day traders place a larger number of trades than usual.
Day trading is therefore more time intensive and requires the trader to check the AEX price regularly throughout the day. A day trading AEX investor strategy can be applied to different time frames. Some traders opt for the 5 minute (M5) chart while others focus on the M15, M30 chart or follow the price development on the 1-hour chart.
Regardless of the chosen timeframe, most day traders will rely almost exclusively on their live technical analysis. The indicators and technical tools they use will depend on the strategy applied. The MetaTrader trading platform is known as the best AEX trading software and offers a wide variety of useful indicators, technical tools and automated trading scripts that can simplify your AEX investing and trading activities.
Source: AEX25 CFD, chart M5, MT5 Admiral Markets Supreme Edition, January 24, 2019 - Results achieved in the past do not guarantee future results
In the M5 chart above, each new bar represents the price development over 5 minutes. The yellow box marks a full trading day from AEX opening to closing time. Day traders use technical analysis, indicators and tools to respond to price fluctuations. This will often result in multiple trades being placed per day. However, the day trader will close their positions before AEX closing time and take stock to start fresh the next day.
Scalp trading the index
Scalping is a form of trade that is similar to day trading. On the spectrum where AEX investing represents long-term AEX investing, short-term scalping is extreme. Scalping is a trading style or technique whereby traders buy and sell a financial instrument within a very short period of time. Scalpers aim to gain only a few points or pips with their trades. This means that scalpers often open and close a large number of positions, sometimes even within minutes.
Scalpers will usually opt for the smallest possible time frame, for example, the M1 AEX trading chart. Scalping is less suitable for novice traders. Scalping is very intensive - it demands a lot from the trader since they must be willing to make a large number of quick trading decisions.
For that reason, scalpers typically opt for a defined time frame rather than an entire trading session. It is common for scalpers to focus on the hours around the opening of the AEX stock exchange. This is usually the period when we see the most activity. This activity provides the volatility required for AEX scalp trading.
Source: AEX25 CFD, Graph M1, MT5 Admiral Markets Supreme Edition, January 24, 2019 - Technical Analysis AEX - Past performance is no guarantee of future results.
In the M1 AEX trading chart above, the yellow box marks the first three hours after the opening of the AEX stock exchange. You can deduce from this that most of the movement took place in the first few hours after the opening of the AEX. Afterwards, when European traders ushered in the lunch break, the AEX price development turned out to be flat. This is not ideal for scalping; gains such superficial moves will not be worth it to the scalper.
While not every trading day may be the same, this example illustrates a strong general trend. However, if major economic events or announcements are planned, the market can be just as volatile later in the day. To increase their returns, scalpers will have to adapt their trading schedule to the AEX stock exchange opening hours.
Hedging with the index
The golden rule of trading is 'maximize your profits and limit your losses'. Professional traders apply so-called hedging techniques for this purpose. This method is fairly advanced and, as the name suggests, is used by hedge funds to (partially) hedge their risk. Consistently successful traders select trading options that can offset the risk exposure of another investment.
This index is suitable for applying the hedging method. When using this technique, the trader will initiate a buy or sell position that counterbalances the risk of loss presented by another investment. Let's clarify this with an example.
Suppose the trader holds positions in individual AEX shares, including KPN. Investing in this index requires a long-term vision. Even though a general fall in the price of the index in the short term is expected, the investor does not want to sell. For example, he may have bought back at a good price or is benefiting from a return on dividends.
In January 2019, this AEX return amounted to more than 4.82%. In this case, this investor could choose to 'short' the index to profit from a falling stock market. These gains would 'hedge' the risk exposure and any losses on (falling) individual AEX shares.
However, there is no such thing as a perfect hedge. Although the application of these techniques is designed to reduce risk exposure, placing the hedge position also involves risk.
Hedging is an advanced risk management strategy and may not be suitable for novice traders. However, investing in this index can be a good way to hedge or reduce your risk exposure. We discuss how AEX investing fits into a well-diversified trading portfolio.
Risk Spread on the index
This index essentially reflects the average value of the selection of stocks. In principle, when trading the AEX, the opportunities and risks are spread over the various underlying financial assets. Some novice traders label the inherent diversification that AEX investing represents as an additional risk management measure. Many novice traders, therefore, see this index as a good starting point for their trading activities.
After all, investing in this index means that you simultaneously invest in all 25 companies. As mentioned, this offers the advantage of diversification. Let's illustrate this with an example.
Suppose you had chosen in 2010 to invest €10,000 in individual AEX shares, such as ArcelorMittal. In 2015, you would only have € 3,340 leftover from your €10,000 investment. However, had you opted to invest in the index, you would have benefited from the development of the price of the index during this period. As you can read in the table below, the index has shown steady growth during this period. In 2015 you could credit a result of €14,100.
An opposite scenario is of course also possible. There are AEX companies that have outperformed the overall index. However, it is impossible to determine in advance with absolute certainty which companies that will be. Although traders apply fundamental and technical analysis, this does not offer absolute guarantees. Risk spreading is one of the most important elements of risk management. AEX investing offers you a certain degree of diversification.
Another striking advantage of investing in this index is that you do not have to choose between Heineken, ING or Unilever. The aforementioned shares are all part of the AEX 25 index, just like 22 other top shares. AEX trading means that you participate in the development of all shares included in the index.
Let's dig deeper into this - we'll discuss the benefits of investing in AEX 25 vs. invest in AEX shares.
Historical price development of the index
First, let's look at the price development of the AEX index history over recent years. Below is an overview of the results of the Index in the period from 2012 to the present.
- As at 31/12/2012: + 17.2%
- As at 31/12/2013: + 5.6%
- As at 31/12/2014: + 4.9%
- As at or 31/12/2015: + 6.5%
- As at 31/12/2016: + 9.4%
- As at 31/12/2017: + 12.7%
- As at 31/12/2018: - 10.4%
The ample price movements and steady growth make this index a very popular instrument.
Investing in the index vs individual shares of the index
Some traders will choose to trade individual AEX shares where others choose to invest in the AEX 25 Index.
Those who choose the first option can make their selection from twenty-five top companies such as Philips, KPN, ABN AMRO and others. It appeals to the imagination - did Philips have a good quarter? Then we can get a piece of the pie in this way.
However, keeping track of the development of twenty-five different stocks can prove to be very time consuming. Following the news, earnings numbers, special announcements and then making a trading decision based on them is not for everyone. Even if the trader focuses solely on technical analysis, tracking different stocks could hinder a trader's performance.
One of the reasons why many traders choose index investing is the fact that they can focus on just one market. Familiarity with the market dynamics is built up and a feel for what moves the index.
Experienced traders use technical analysis to identify the market trend and make predictions about future price movements. They can interpret these findings against the background of the macroeconomic fundamental analysis and determine their strategy based on this. Experienced traders will agree that this provides an important edge or advantage.
However, when choosing to trade individual stocks, the trader will have to decide the basis on which to make their trading decisions. The three options available are:
- Technical analysis
- Fundamental analysis
- A combination of technical analysis and fundamental analysis
Fundamental Analysis, Technical Analysis or Both?
The choice between technical analysis, fundamental analysis or a combination of both is determined by the trading style and the trading strategy chosen by the trader. Before we look at some AEX investing strategies, we should first know more about technical analysis and fundamental analysis.
What is Fundamental Analysis?
This type of analysis involves making trading decisions based on the fundamental economic drivers of the market you are trading. This type of analysis involves:
- Analysis of macroeconomic indicators to determine the health and long-term direction of the national and regional economy.
- Research into the performance of companies listed on the index. This includes the analysis of company data and reports such as the annual and quarterly reports, sales figures, debt ratios and forecasts to gain a picture of the future development of the relevant shares in the index.
- Staying up-to-date with developments in the Dutch and European political and economic sphere. Consider, for example, an analysis of the general policy measures of the European Union and the European Central Bank and the Dutch Bank. The exchange rate of the euro can have a major impact on the European equity markets, including the index's rate.
Fundamental analysis offers some striking advantages. One of the biggest advantages is the fact that it can lead to the identification of long-term trends. Fundamental indicators give us insight into what will happen over time and the prevailing sentiment. It provides us with the background against which we can interpret information obtained from technical analysis. However, one point where the use of fundamental analysis, according to many, falls short is that it provides little or no insight into what is happening now.
An important objection from traders who opt for technical analysis is that all this data only tells us what has already happened. The fact that this information is known means that it is now discounted in the market price. Another practical disadvantage is that fundamental analysis does not help when timing trades or determining the ideal moment for market entry.
Source: AEX25 CFD, Chart Weekly, MT5 Admiral Markets Supreme Edition, January 28, 2019 - Past performance is no guarantee of future results.
Suppose we can deduce from various economic data that the direction of the price of this index will change in the long term. However, this does not provide a basis for any actionable actions. We do not know when to expect this trend movement and how we can best respond to it.
Let's see how technical analysis can help us do this.
What is technical analysis?
Technical analysis refers to studying the development of the index in realtime, including prices, timeframes and AEX index volume, to identify price patterns. Price movement is driven by the actions of the collective market participants; buyers and sellers. They drive the price up or down.
Human behaviour is largely predictable. The thinking behind technical analysis is that if one can identify price patterns and the conditions under which they occur, one can predict future price movements. You don't need to know all the fundamental and macro-economic data, as all information is already discounted in the price development.
However, the application of technical analysis goes further. Traders use technical tools and trading indicators to generate specific buy and sell signals. This can help both short term traders and investors determine the best possible entry and exit times for their trades.
Source: AEX25 CFD, chart H4, MT5 Admiral Markets Supreme Edition, January 28, 2019 - Past performance is no guarantee of future results.
Many experienced traders will agree that a combination of both forms of analysis leads to the most reliable results. Findings from fundamental analysis can provide the necessary context in which to view your technical analysis. For example, it can give an idea of prevailing market sentiment and how far the market will move up or down.
Experiment with both technical analysis and fundamental analysis and the combination of these, to predict the price development.
Investment strategies & analysis for different trading forms on the index
Most traders today focus purely on technical analysis as this can tell them whether the fundamental picture is bullish or bearish. After all, for a multi-billion market such as the Amsterdam AEX index to move and, for instance, float upwards, sufficient market participants must be bullish and be prepared to buy. Sentiment thus determines the most likely direction of future share price development.
is why technical analysis is generally seen as the best basis for trading decisions - it simply tells the trader what is happening in the market now and what the trend is. Novice traders are therefore often advised to start with technical analysis. Depending on the investment strategy you have chosen, technical analysis may also prove indispensable for you, whether you are interested in an FTI in the AEX index, trading its actual stocks or investing in the index:
In this investing style, traders can choose to rely solely on technical analysis. They can use trading indicators to find the best trend movements and turning points in the market.
However, they can also choose to use fundamental analysis to help determine what may happen in the longer term. Some traders are waiting for the tech picture to reflect the fundamental scenario. This applies as an extra guarantee. In this way, the investor tries to choose the highest probability trading opportunity.
Day trading and Scalping
Since scalpers and day traders place many very short term positions daily, the use of fundamental analysis is inadequate. The number of trading decisions and the speed with which they have to be taken is beyond human capacity and often requires the application of technical indicators. This makes technical analysis the best method for these extremely short-term forms of investing.
There are numerous long-term investor strategies available. Depending on the chosen strategy, indicators are selected that support this technique. However, two trading indicators are very popular among long-term investors.
We are now going to discuss the Moving Average and the MACD oscillator.
Technical analysis trading strategy - Applying the Moving Average Indicator
Moving Averages (MAs) are among the best known and most used indicators for trading and investing in the financial markets. The Moving Average indicator helps the trader determine the direction of the market trend. If multiple Moving Averages are used, the alignment can be used to determine which group is in control - the buyers or the sellers. Most long-term investors are trend followers, which means that they bet on movements in line with the general trend. These are usually the movements with the strongest momentum and the longest breath.
Essentially, a Moving Average is the average of the price of a number of bars defined by the trader. A 50 period moving average is the average of the price of the last 50 bars over the selected time frame. This helps the trader to see through the volatile price swings in the share price. They can thus more easily determine what the general market trend is.
There are three main types of Moving averages:
- Simple Moving Average or Simple Moving Average
- Exponential Moving Average
- Weighted moving average
Source: AEX25 CFD, Chart Weekly, MT5 Admiral Markets Supreme Edition, January 28, 2019 - Past performance is no guarantee of future results.
The most commonly used Moving Averages are shown in the image above:
- 50 Simple Moving Average (50 SMA) - Red line
- 100 Simple Moving Average (100 SMA) - Orange line
- 200 Simple Moving Average (200 SMA) - Green line
The moving averages with a smaller value are known as fast moving averages. The moving averages with higher values are known as long moving averages. For example, a 10 period moving average is considered a fast moving average because it shows the average trend of the last 10 periods and thus adapts relatively quickly to the changes in the price trend.
When a fast moving Moving Average trades above a slow moving MA, it indicates that there are more buyers in the market and we are dealing with a bullish trading price. This is the case, for example, if the 50 MA trades above the 100 MA. However, if the fast moving MA is below the slow moving MA, it indicates a bearish index trend.
Source: AEX25 CFD, Chart Weekly, MT5 Admiral Markets Supreme Edition, January 28, 2019 - Past performance is no guarantee of future results.
The image above shows an example of a bullish trend move. In addition to the price development, this can be read from the alignment of the Moving Averages. The Moving Averages are shown as follows: the 50 MA is above the 100 MA and the 100 MA is above the 200 MA. As you can see, the index price broadly followed the trend higher, barring some wild price fluctuations. These outliers can give a distorted picture; the use of Moving Averages helps to keep a grip on the general index trend.
Although Moving Averages prove extremely useful to determine the trend in your technical analysis, they are often used in combination with other indicators. Additional indicators can be used, for example, to determine the best entry points. For example, we could incorporate the MACD oscillator into our index investing strategy to filter the best reward-to-risk trades.
Technical analysis trading strategy - MACD Indicator
The MACD indicator is a very useful tool in technical analysis. MACD stands for Moving Average Convergence Divergence and can be classified as a trend following momentum indicator. The MACD value is calculated by subtracting the 26 Exponential Moving Average (26 EMA) from the 12 Exponential Moving Average (12 EMA). The indicated values are projected as a 9-period signal line and displayed as a histogram. The picture below provides a visual representation of the MACD oscillator.
The fluctuations on the MACD histogram in various ways are used to determine possible signals for favourable buy and sell times. The simplest technique is the so-called MACD crossover. Crossing the 9-period EMA signal line (the vertical black lines) above the horizontal 0 level in the MACD histogram is a sign of a bullish sentiment. In the context where your technical analysis indicates a bullish trend, this can be an important signal for market entry.
Technical analysis trading strategy - Combination EMA & MACD
The figure below shows an example of technical analysis combining the use of the MACD oscillator and the Moving average indicator.
In this graph of the Amsterdam index, the moments when the Moving Average indicators indicate a bullish trend, while the MACD oscillator crosses above its zero line, are highlighted.
When one combines technical analysis techniques one can identify the strongest trend movements. This approach is ideally suited for long-term investing. Now let's take a look at a short term investor strategy.
Short term index investment strategies
The short-term investor can have a wide choice of different time frames - these include:
- 1 minute chart
- 5 minute chart
- 15 minute chart
- 30 minute chart
- 1 hour chart
- 4 hour chart
Depending on the chosen timeframe, you will focus on a particular technical analysis technique and appropriate indicators. In this specific strategy, we will focus on the 1 hour trading chart. Every hour that the market is open, a new bar will be created that reflects the price change during this period. One of the advantages of the chosen time frame is that the trader can check their trading chart every hour, on the hour. This makes the trading day relatively efficient for a short term trader - after all, they don't have to check their chart every minute.
The first bar opens at 7am CET and closes at 8am CET. A new bar is created every hour until the US market closes at 9:00 PM CET.
Source: AEX25 CFD, chart H1, MT5 Admiral Markets Supreme Edition, January 29, 2019 - Past performance is no guarantee of future results.
In the chart above, we have delineated the trading days with blue vertical lines. In this specific period, there are quite a few fluctuations in the price development. This makes it ideal for intra-day traders, day traders and scalpers.
We can support our technical analysis by applying an indicator to identify the price swings. In this case, we choose the stochastic oscillator. This is a momentum indicator that uses the moving average of the highs and lows within a specific range. The obtained values are plotted in the indication window and are fixed between 0 and 100.
This indicator is mainly used to identify overbought and oversold conditions:
- Crossing of the Stochastic lines above the 80 level indicates an overbought condition and anticipates a price drop.
- When the Stochastic lines move below the 20 point level, it indicates that the index is oversold and a rally higher is likely.
The image below of the H1 AEX trading chart illustrates three scenarios where the stochastic oscillator indicated overbought/oversold scenarios. As we can see, the stochastic oscillator's trading signal was followed by a 'swing' - strong movement in the price trend - towards the cross.
Source: AEX25 CFD, chart H1, MT5 Admiral Markets Supreme Edition, January 29, 2019 - Past performance is no guarantee of future results.
Using the stochastic oscillator can prove to be a good addition to your technical analysis. It helps the trader determine the most favourable moments for entry into the price development.
Would you like to get started with investing in this index? Let's discuss the practical points you should consider. We are now going to look at how to choose the best trading software and broker and how to set up a trade.
Trading the index
Index Trading Software
To get started investing, you first need to have the right software. The MetaTrader trading platform is widely regarded as the best trading software. You can choose from the MetaTrader 4 and the MetaTrader 5 trading software.
Admiral Markets offers free access to both versions of the online trading platform. MT4 and MT5 are not just trading platforms but complete online trading software solutions with integrated functions and tools for technical analysis. Moreover, MetaTrader is a multi-asset trading platform - this means that you can trade a wide variety of markets and instruments.
Do you want to apply the above hedging techniques? Experienced traders argue that diversification is one of the most important risk management tools. By including various assets in your trading portfolio, your risk exposure is spread. You can try trading other assets on the MetaTrader platform.
Moreover, Admiral Markets offers an exclusive add-on; MetaTrader 5 Supreme Edition. Boost your trading experience with MT5SE. This plug-in includes over 55 additional innovative indicators and technical aids, advanced functions, display options and much more. Download MetaTrader Supreme Edition trading software and start trading online!
Benefiting from a bullish price development on the index
Set long trading position
Is your technical analysis indicating short or medium (long) term bullish price performance? You can react to this by placing a 'long' or buy position. I will now illustrate how to set this up on the MetaTrader 5 trading platform:
- Once you are logged into your MetaTrader trading platform, you can apply the Mini Terminal tool to your trading chart.
- Enter the values for your stop loss and the amount in Euros you are willing to risk to calculate your position size, 'lot size'.
- Click on 'Set up batch'
- You can activate a buy order by using the 'Buy' button or via the blue vertical column on the left side of the Mini Terminal.
If you choose a pending order (conditional order), follow the steps below:
- Go to the Mini Terminal and click in the blue column on the desired price level for entry.
- Click again to set the target stop loss level.
- Click again to determine the desired Take Profit level.
It is of course possible to adjust or cancel the Take Profit level later. This is especially useful if your investing strategy involves placing different take profit levels. You do this by selecting the Take Profit "T/P" line and checking "None". Traders use this technique to optimize their chances of profit when the price moves in their favour.
Does your technical analysis/fundamental analysis point to an emerging financial crisis? Then you will want to position yourself for sharp falls in the price. Your investing strategy will, in this case, involve placing 'short' or buy orders.
Benefiting from a Bearish AEX Price Development
Do you think European instruments are overvalued and that the trading price of the index will fall?
Short Trading order
We will explain below how you can place a short position to capitalize on this downward movement. You follow the steps mentioned above, except:
- You use the Sell button in the Mini Terminal to set a short order on the AEX 25 index.
- You set up a pending order using the red vertical line.
Choose the right broker for your investing and trading activities
As you have read, there are several reasons why so many traders trade this index. Admiral Markets is one of the leading brokers in the European market and offers you very favourable trading conditions. Your trading experience is largely determined by your choice of broker. The quality of execution, the prevailing trading conditions and costs can affect your trading results and even include the difference between profit and loss.
Before making your choice of broker, always check the trading conditions and costs; pay particular attention to the following points:
- No commission - you only pay the spread that applies to the Index.
- The typical trading spread of 0.2 points is very advantageous. The spread is the difference between the bid and the ask price.
- You can already get started investing with a minimum investment of €200, depending on the account type you have chosen.
- Investing is very accessible, even for traders with smaller capital. You can place positions from €0.10 per point.
- Wide leverage available - depending on your client status and the instrument to be traded, Admiral Markets provides access to leverage positions of up to 1:500 for professional clients. This means that you can manage positions that are up to 500x greater than your investment amount. Mind you, the associated risks are increased by the same factor. When using leverage, you must have a good risk management system.
- Leverag/margin trading up to 1:20 for retail clients, protected by the Negative Balance Policy.
- Negative Balance Policy offers negative balance protection. Read the terms and conditions applicable to your client category on our website.
- Free real-time, professional trading charts available through the MetaTrader 4 and MetaTrader 5 trading platform as well as real-time charts of a variety of other financial assets and instruments.
- Access to the exclusive Admiral Markets MetaTrader Supreme Edition add-on.
- Easily and quickly enter positions using 1-click trading. You can place a trade within a fraction of a second.
- Admiral Markets UK ltd. is a leading online broker regulated by the UK Financial Conduct Authority (FCA). The FCA is one of the most renowned market authorities and provides a claim for FSCS protection.
- Free withdrawals and deposits via super-fast bank transfer. Additionally, credit card payments and payments via Neteller, Skrill and iDeal are available.
- Application of hedging techniques possible.
- Direct order execution
- No minimum distance for placing Stop Loss (SL) and Take Profit (TP) orders
- All trading styles are allowed and supported.
- Unlimited use of Expert Advisors (EAs)
If you focus on trading, you should be aware that the trading conditions that different brokers use can vary widely. Always check the contract conditions first. If you would like to learn more about what to look for when choosing a broker, please refer to our article - How to Find the Best CFD & Forex Brokers in 2021.
Invest in the AEX
We have highlighted the most important characteristics of index investing. The Amsterdam Index is an extremely suitable trading instrument for both novice and advanced traders. Market conditions offer scope for the application of different trading styles. Moreover, at Admiral Markets you can start investing in extremely favourable trading conditions and competitive costs.
Additionally, this stock index is ideally suited for the application of technical analysis. Most traders who are interested should be fairly familiar with the performance of the various AEX companies and the development of the overall index. This forms the fundamental background against which the trader can interpret their technical analysis.
Admiral Markets offers both free demo and live trading accounts that allow you to take advantage of the MT4 and MT5 trading platforms and experience our service for yourself! You can practice, experiment, and build familiarity with the market risk-free before switching to a live trading account. You can also test the effectiveness of your technical analysis strategy risk-free. Do you have specific or personal questions? Our team of experts is ready to help you!
Links to Related Trading Articles:
- Ideas for Passive Income Streams in 2021
- Investing in the EuroStoxx Index: Your guide for 2021
- Mirror trading: What exactly is it?
About Admiral Markets UK Ltd.
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets trademark (hereinafter “Admiral Markets”) Before making any investment decisions please pay close attention to the following:
- This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
- Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
- With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
- The Analysis is prepared by an independent analyst, (hereinafter “Author”) based on their personal estimations.
- Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis.
- Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
- Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.