Part 2: Principles of the Dow-Theory
One of the most influential instruments for analysing the financial markets is the Dow theory from Charles Dow. This theory has six principles:
1. everything is processed in the indices or market averages;
2. the market has three trends;
3. each primary trend consists of three phases;
4. the market averages must confirm each other;
5. the volume must confirm the trend;
6. a trend remains intact until there are definitive signals that it is reversed.
1: everything is processed in the indices or market averages
All the information is processed within the prices. The historical price is the only objective information what the technical analyst has.
2: the market has three trends;
Primary trend: longer than 1+ year
Secondary trend: correction within the primary trend
Mino trend: Shorter than three weeks
upward trend: This are series of higher higs;
downward trend: Serie lower lows;
@3. each primary trend consists of three phases;
1. the first phase/accumulation phase : big investors buying in, the market is not well known yet
2. second phase (all prices starting to rise): trend-folowwing investors steps in
3. third phase/distribution phase (when there is more positif news, the not initiated investor steps in): In this phase nobody wants to sell because the prices are rising very hard, only the big investor takes their profit in this phase.
@4. the market averages must confirm each other;
The market averages has to confirm each other. I'm looking at the total market movement.. When u follow the market u see that the average of the market is moving the same direction.. This confirms the trend direction..
@5. the volume must confirm the trend;
If the primary trend goes up, the volume should increase, downward corrections will take place with less volume. A decrease in the primary trend is usually accompanied by more volum, while we should see less volume with the upward corrections.
@6. a trend remains intact until there are definitive signals that it is reversed.
The next figures shows the end of the trend.
When to Sell??
"failure swing": The new top B is not capable of getting higer than the previous top A. After that the price is getting down , when it reaches S this is an signal for selling!
Nonfailure swing: C becomes higher tan previous top A. But after that it goes down under B. S1 is the first position where to sell youre share. If you missed S1 then take S2 for stepping out.
Now whe know when we have to sell, but we know when to buy before we can sell.. This figures shows our first buying target... This is how we can search our buying target!!
When to buyl??
"Failure swing bottom": This image shows how you can recognize an uprising trend. The price sets for the first time a higher low (C is higer than A), we set our buying target on B. After the price goes above B the uprising trend will start.
"Nonfailure swing bottom": Here we see the price is getting lower (C is lower than A), but after that the price goes above the stopover (B)..
In this case u can see this as the first signal for a bullish market, place buy order at B1.. If you want confirmation (this could lead for missing B1) of an bullish market, then wait for E.. When E is higher tan A, this is an confirmation of bullish market.. Then place your Buy orders...
This are all signals what u can use for finding the trend withing the market. It is hard to say when the market is turned. There are a lot of different opninios about the trend and charts by using technical analysis... The dow theory does not give you any certainty or guaranty.. This is just a tool to get a signal for the market.. It is up to u what to do with it.
1. everything is processed in the indices or market averages;
2. the market has three trends;
3. each primary trend consists of three phases;
4. the market averages must confirm each other;
5. the volume must confirm the trend;
6. a trend remains intact until there are definitive signals that it is reversed.
1: everything is processed in the indices or market averages
All the information is processed within the prices. The historical price is the only objective information what the technical analyst has.
2: the market has three trends;
Primary trend: longer than 1+ year
Secondary trend: correction within the primary trend
Mino trend: Shorter than three weeks
upward trend: This are series of higher higs;
downward trend: Serie lower lows;
@3. each primary trend consists of three phases;
1. the first phase/accumulation phase : big investors buying in, the market is not well known yet
2. second phase (all prices starting to rise): trend-folowwing investors steps in
3. third phase/distribution phase (when there is more positif news, the not initiated investor steps in): In this phase nobody wants to sell because the prices are rising very hard, only the big investor takes their profit in this phase.
@4. the market averages must confirm each other;
The market averages has to confirm each other. I'm looking at the total market movement.. When u follow the market u see that the average of the market is moving the same direction.. This confirms the trend direction..
@5. the volume must confirm the trend;
If the primary trend goes up, the volume should increase, downward corrections will take place with less volume. A decrease in the primary trend is usually accompanied by more volum, while we should see less volume with the upward corrections.
@6. a trend remains intact until there are definitive signals that it is reversed.
The next figures shows the end of the trend.
When to Sell??
"failure swing": The new top B is not capable of getting higer than the previous top A. After that the price is getting down , when it reaches S this is an signal for selling!
Nonfailure swing: C becomes higher tan previous top A. But after that it goes down under B. S1 is the first position where to sell youre share. If you missed S1 then take S2 for stepping out.
Now whe know when we have to sell, but we know when to buy before we can sell.. This figures shows our first buying target... This is how we can search our buying target!!
When to buyl??
"Failure swing bottom": This image shows how you can recognize an uprising trend. The price sets for the first time a higher low (C is higer than A), we set our buying target on B. After the price goes above B the uprising trend will start.
"Nonfailure swing bottom": Here we see the price is getting lower (C is lower than A), but after that the price goes above the stopover (B)..
In this case u can see this as the first signal for a bullish market, place buy order at B1.. If you want confirmation (this could lead for missing B1) of an bullish market, then wait for E.. When E is higher tan A, this is an confirmation of bullish market.. Then place your Buy orders...
This are all signals what u can use for finding the trend withing the market. It is hard to say when the market is turned. There are a lot of different opninios about the trend and charts by using technical analysis... The dow theory does not give you any certainty or guaranty.. This is just a tool to get a signal for the market.. It is up to u what to do with it.
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