The Nikkei 225 stock index is the most important index reflecting the state of the Japanese economy, as well as the general business activity in the country. It is considered one of the oldest indices in Asia. The stock index includes 225 stocks of companies that are traded directly on the Japanese market. The most famous of them are: Sony Corporation , Canon Inc , Nissan Motor Company and Honda Motor Company .
Interestingly, the index got its name from a Japanese economic newspaper that calculated this instrument. It was first published back in 1950 and was calculated as the arithmetic average of the value of securities of the companies included in the index. The weight of the company in the index is calculated not based on the total market capitalization, but directly from the value of the company’s shares. The composition of companies in the index is revised every year in September, changes by companies are adopted in October, and the composition of the index changes.
By the way, RoboForex recently added the ability to trade this index. Moreover, the company made trading in all indices even more accessible and attractive for traders by reducing the minimum lot and step. Average spreads remain one of the lowest, for example, for the De30Cash index , the average spread will be 0.5 euros per contract.
Nikkei 225 Technical Analysis
The Nikkei 225 differs slightly from other stock indices such as NASDAQ , Dow Jones and S&P 500 . If there we can see quality strong bullish trends and a rapid recovery from dips, then the Japanese stock index has been trapped in a wide sideways movement since mid-2017. And only this year, the quotes fell beyond the lower border of this range, almost reaching the level of 2016. However, the price quickly returned inside the corridor, and now the quotes are again preparing for the test of the important resistance level of 24200, the breakdown of which will indicate a potential continuation of the rise in the asset value. Important is the support area located at 20000. As we can see, the price is after a test of this level up three times already tested support and demonstrated a good rebound. In general, the instrument is quite technical, many levels and models are worked out very well here. Even now, the formation of an inverted head and shoulders pattern can be distinguished . As part of the pattern, we should expect another attempt to decline and test the level of 20005, here the formation of the “right shoulder” of the model will complete.
As a rule, many traders who use chart patterns in trading buy on the “right shoulder”. The general target of the rise is the level of 30985. Cancellation of the growth option for the Nikkei 225 index will be a breakdown of the level of 16255, this will indicate the cancellation of the model and the potential continuation of the fall in the value of the index.
A simple strategy for trading Nikkei 225
Not all traders like to trade using classical technical analysis , as this requires constantly thinking and drawing various levels, looking for patterns. A significant drawback of such an analysis is a subjective assessment of what is happening, for some the model will not seem correct enough, while another trader will see , for example, a ” Triangle ” instead of a reversal pattern . Therefore, we will consider one of the strategies using indicators, where the subjective factor will be excluded, and adjust the trading strategy for the Nikkei 225 index.
What indicators are needed for a strategy?
Still, it cannot be said that the instrument moves without trends, there are quite strong directional movements, so we will add Moving Averages to determine the direction in which we will open positions, and also add the Fractals indicator , which will act as a signal to enter the market and place Stop Loss . For trading, we will use a chart on a thirty-minute (M30) timeframe .
Strategy parameters for trading the Nikkei 225 index
So, we have selected several indicators, now let’s look at what parameters need to be changed in order for the strategy to work well on the index. The Exponential Moving Average (EMA) with a period of 25 is a fast moving average that will be as close to the price as possible. The Exponential Moving Average (EMA) with a period of 195 is a slow moving average located much further from the price. The Fractals indicator with standard parameters is formed in the form of a “Triangle” above the chart candle .
How to open a trade to buy Nikkei 225?
To generate a signal in favor of buying the index and opening a deal, it is important to observe the following conditions:
- The 25 period EMA has just broken the 195 period EMA from the bottom up and is above it. It also indicates the start of a bullish momentum.
- The Fractals indicator has formed above the candles.
- After that, place a pending Buy Stop order above the Fractal indicator by 2-5 points higher.
- Stop Loss is placed behind the nearest Downward Fractal before the Moving Average crossover.
- Set the first Take Profit to the width of the Stop Loss. The second Take Profit can be set to two Stop Loss widths. Or we can use Trailing Stop to maximize profits.
Example of a trade to buy an index by strategy
Let’s consider such a deal by an example. As you can see, after the crossing of the moving averages, the fast moves above the slow moving average. A fractal has formed above the candles – this is the first fractal immediately after the crossing of movings. Above the fractal, we place a pending order at a price of 20770.
Set the Stop Loss at 20418, below the last fractal, before crossing the movings. Set the first Take Profit at a level equal to the distance between the trade opening price and Stop Loss, we get the level 21122. Close the second part of the position at 21474, or set the Trailing Stop. In this case, the upward movement was very strong, so both positions would have been closed with a good profit.
Trading the Nikkei 225 stock index is generally no different from trading other assets. Classical technical analysis works well on the index, here you can make good money using levels, as well as simple chart patterns. For those who want to trade using indicators, we reviewed the strategy on a thirty-minute chart. Among the advantages of the strategy are very simple and clear rules for entering and exiting the market. Trading is carried out in the direction of the trend, and due to strong movements that may appear on the index chart, there is an opportunity to get a good profit. Moreover, the system can be back-tested to see how well it works at different times. Do not forget that the strategy for trading a stock index can be changed and your instruments can be added to it for more accurate market entries. In any case, this approach can be recommended both for beginners to trade the index and for more experienced traders who have not yet traded on the Nikkei 225 chart.