dow theory

Dow theory is one of the earliest methods in Technical Analysis, that is used to determine the trend of a company’s stock. It uses daily price and volume charts of stocks for a minimum look up period of 2 years to analyse. the forecast is for 1 to 3 months
The line chart with a minimum of two years data is used to forecast the trend for 2 to 3 months
Steps to determine the market trend using Dow Theory:
1) Take the data of approx 2 years and plot it into line chart.
2) Mark the tops and bottoms. Only significant Tops/Bottoms to be considered; Minors can be ignored.
3) Qualify the tops and bottoms as lower Bottom, Higher Bottom, low top, higher Top
4) Look for a sequence as follows to find the trend.
If the sequence is formed with Higher bottom and Higher Top with significant volume, it is a Bullish trend.
If the sequence is formed with Lower top and Lower bottom with significant volume, it is a Bearish trend.
The dow theory tells us only the direction and not the time frame or price for exit or entry. it does not indicate the shorter reflections in the market. it remains at the top for it was the first theory being established to know the trend in the market.