Ask The Experts
Hi Paul,
Is there more to volume than just the amount of shares traded? I keep hearing "... the stock was up on heavy volume..." and I am not sure why that's important.
D.T.S.
Chicago, IL
Tips of the Trade
Test your trading strategy using Virtual Trading available only on ScottradeELITE! Simply check the Enable Virtual Trading box to receive a "virtual" balance of $100,000 to buy and sell stocks. Your true account balance and positions won't be affected, nor is a commission charged. Try Virtual Trading today!
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| Trading Web Site | 8/29/09 |
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Using Benchmarks
An investment benchmark is a standard against which you can measure the performance of an individual security or a group of securities. For example, the average annual performance of a category of investments is a benchmark against which the current performance of that same category - as well as its individual members - may be compared. For example, the average annual return on U.S. Treasury bills, representing cash investments, has been 3.7% since 1925.
Indexes are the most common investment benchmarks. Each index tracks the relative strength or weakness of a particular segment of the economy over time and is useful for capturing not only the performance of the segment it tracks but for evaluating the return of individual investments that fall within that segment.
Among the most widely followed benchmarks in the United States are the Standard & Poor's 500 Index (S&P 500) and the Dow Jones Industrial Average (DJIA or the Dow), the Russell 2000 and the Dow Jones Wilshire 5000. The S&P 500 tracks the performance of 500 large-cap U.S. companies in ten sectors. The DJIA follows 30 blue chip companies in the United States. The Russell 2000 tracks small U.S. companies, and the Wilshire 5000 includes all of the stocks listed on U.S. markets. The index providers choose the companies tracked in these indexes and the way the components are updated, based on the particular criteria they establish.
Another significant benchmark is the 10-year Treasury bond, which is used to gauge investor sentiment. Lower yields indicate that more consumers are investing in the bond market, driving bond prices up. Higher yields tend to indicate more consumers are investing elsewhere, as decreasing demand leads to lower bond prices. (Side Note: Bond prices and yields are inversely related. When bond prices go down, yields rise, and when prices go up, yields fall.)
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