Dow Theory is the basis of technical analysis of stock markets. The basic idea of Dow Theory is that market price action reflects all available information and the market price movement respect demand and supply.
The market trend can be analysed by daily line charts with 2 years of data using Dow Theory.
In the chart, mark the mager tops and bottoms. And qualify them as Higher Top(H.T), Higher Bottom(H.B), Lower Top(L.T), Lower Bottom(L.B).
Follow the sequence with the significance of volume at breakout to determine the trend.
Bullish: H.B – H.T and Bearish: L.T – L.B.
Dow theory provides only trand indication and only for the long duration and does not indicate the short term ups and downs in the market.
But this theory is top of analysis becauae it’s basic of demand and supply , since it is proven for many years and good for deriving the trend easily.
Dow theory is based on demand and supply.
When Demand > Supply, Buy the stocks.
When Supply > Demand, Sell the stocks
If we find the sequence of Higher bottom and Higher Top, we can buy the stock as the trend is bullish.
Where as if the sequence is formed by Lower top and Lower bottom, we can sell the stock as the trend is bearish.
2-3 months or Good for long term investment and depends upon trend and other market condition or effect.
Support and resistance are the next major concept after understanding the concept of a trend.
In technical analysts notice the ongoing battle between bulls and bears, or the struggle between buyers (demand) and sellers (supply). The proverbial ‘battle lines’ can be defined as the support and resistance levels where the most trading occurs. Support levels are where demand is perceived to be strong enough to prevent the price from falling further, while resistance
