How do I Read the Dow Jones Industrial Average?

The Dow Jones Industrial Average is a measure of 30 large American companies. Understanding how to read the Dow Jones is important for investors, as it provides them with a measure of the economy's performance.

Calculating the Average

The Dow Jones Industrial Average is not truly an average of the stocks that it measures. The Dow Jones consists of 30 companies, but their prices are not simply divided by 30. They are divided by a number known as the Dow Divisor, which is intended to offset events such as dividend payments and stock splits. The number is calculated and published regularly by "The Wall Street Journal."

Points

The result of the Dow Jones Industrial Average calculation is measured in points. This is because, after being divided by the Dow Divisor, the numbers no longer reflect an actual dollar value. These points are used to measure change and you will typically see daily results showing whether the average moved up or down on a trading day. An upward move indicates an average gain for the companies measured and a move downward indicates an average loss.

Percentage

In addition to point changes, the Dow Jones measures the percentage of change that occurs in the market. The percentage indicates the relative size of these movements.

References

• Investopedia: Dow Divisor
• The Seattle Times: The Dow Jones Explained

Resources

• Dow Jones Official Website