DOW JONES THEORY
TREND: A trend is defined as the general direction in which the prices move.
According to Dow Jones, there are three trend types, namely Primary trend, Secondary Trend and Minor Trend.
PRIMARY TREND: It is the longest of the three types of trends and in general determines the overall, broad movement of the security prices. The primary trend might be a upward trend or a primary bull trend or it may be a primary downtrend referred to as a primary bear trend.
Primary bull and bear markets are characterized by 3 different phases i.e. (i)The first represents reviving confidence from the prior primary bear or bull market respectively;
(ii) the second represents the response to increased or decreased corporate earnings respectively; (iii) when speculation becomes dominant and prices rise on “hopes and expectations.” or distress selling, regardless of value, by those who believe the worst is yet to come or who are forced to liquidate
SECONDARY TREND: A secondary reaction is considered to be an important decline in a bull market or advance in a bear market. The secondary trend is an intermediate-term trend that runs counter to the primary trend. Being able to anticipate or recognize secondary reactions increases profit capabilities by taking advantage of smaller market swings.
MINOR TREND: The day to day movements must be recorded and these movements generally make a chart pattern which can easily be recognized as they have a forecasting value. It is basically a horizontal price movement within a 5% range.
CONFIRMATION is one of the most important aspects as one needs to confirm the reversal of a trend. Hence confirm the reversal via trend lines with large volumes as volumes also play a important role in determining the objective of the direction of the price movement.
CONCLUSION: The Dow theory has formed the basis of modern day technical analysis and according to this theory we can identify primary trends and invest in those securities and by identifying secondary trends we can do small swing traces which we can profit if done correctly.
Happy Learning and Trading Everyone. Please hit the like button and follow me for more beautiful theories and setups to understand the basics of technical analysis.
TREND: A trend is defined as the general direction in which the prices move.
According to Dow Jones, there are three trend types, namely Primary trend, Secondary Trend and Minor Trend.
PRIMARY TREND: It is the longest of the three types of trends and in general determines the overall, broad movement of the security prices. The primary trend might be a upward trend or a primary bull trend or it may be a primary downtrend referred to as a primary bear trend.
Primary bull and bear markets are characterized by 3 different phases i.e. (i)The first represents reviving confidence from the prior primary bear or bull market respectively;
(ii) the second represents the response to increased or decreased corporate earnings respectively; (iii) when speculation becomes dominant and prices rise on “hopes and expectations.” or distress selling, regardless of value, by those who believe the worst is yet to come or who are forced to liquidate
SECONDARY TREND: A secondary reaction is considered to be an important decline in a bull market or advance in a bear market. The secondary trend is an intermediate-term trend that runs counter to the primary trend. Being able to anticipate or recognize secondary reactions increases profit capabilities by taking advantage of smaller market swings.
MINOR TREND: The day to day movements must be recorded and these movements generally make a chart pattern which can easily be recognized as they have a forecasting value. It is basically a horizontal price movement within a 5% range.
CONFIRMATION is one of the most important aspects as one needs to confirm the reversal of a trend. Hence confirm the reversal via trend lines with large volumes as volumes also play a important role in determining the objective of the direction of the price movement.
CONCLUSION: The Dow theory has formed the basis of modern day technical analysis and according to this theory we can identify primary trends and invest in those securities and by identifying secondary trends we can do small swing traces which we can profit if done correctly.
Happy Learning and Trading Everyone. Please hit the like button and follow me for more beautiful theories and setups to understand the basics of technical analysis.