Blue Chip Stocks

Blue Chip Stocks

Blue chip stocks take their name from gambling, from such games as roulette and poker. Player's bet with chips, and the blue ones are the most valuable.

The same meaning pertains to blue chip stocks, as these types of stocks are the biggest, and sometimes the most valuable in the stock market. Coca-Cola and McDonalds are considered as Blue Chip.

Of the thousands of publicly held companies, only a few dozen are regarded as blue chips. They play a major role in the stock market because they are huge companies with enormous market value.

Blue Chips also have psychological importance because if the stock price of the biggest companies are doing well, it is seen as a good sign for the rest of the market.

And the reverse is true...if Blue Chips wobble, Wall Street worries if the stock market as a whole will come tumbling down.

In falling markets, the Blue Chips are considered to be safer in stock trading. The theory that big, diversified companies are better able to withstand such negative forces as recessions.

Blue Chips are also thought as being called Large Cap Stocks.

The capitalization of a company is figured by multiplying its stock price by the number of shares it has issued, or shares outstanding.

Large Cap stocks have market capitalization's of $10 billion and up.

The Index that measures Blue Chip performance, is the Dow Jones Industrial Average, which tracks 30 of the largest stocks.

Another is the Standard & Poor's 500 Index (S&P 500), which is made up of 500 leading companies in leading stock industries.

Another benefit of the Blue Chips, is that they have greater liquidity. So when the stock market is falling, it is easier to find buyers and sellers.

It is important to note, that not all blue chips are the safest stocks. Some of these companies have gone nowhere, or steadily down. General Motors is a recent example of this.

You as a stock investor and trader, still must do your due diligence, and look at the companies fundamental's.


So you ask, "What kind of stock trading system would I use to trade a Blue Chip Stock?"

Many stock investors buy Blue Chips, strictly for investing in the stock dividends. Large Cap companies usually pay dividends and are loath to cut them.

Or many stock traders swing trade Blue Chip and Large Cap stocks.

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