The Dow theory, though formed in 1932 , is still very popular even today, as it gives crystal clear guidelines to determine the trend of the market.
For long positions , you have to identify the sequence of the higher bottom, higher top, higher bottom and higher top. When the script breaks the recent higher top with volume confirmation, you can create the long position.
Opposite is true for taking short entry on basis of Lower top, lower bottom, lower top and lower bottom sequence. Once the price breaks the recent lower bottom,with volume confirmation, you can take the short position.
Major trend once confirmed continue for minimum period of one year or more,until, it shows the definite signs of the reversal. The famous saying goes that ” Trend is your friend, until it ends”
The support and resistance points can be identified on the stocks using past data and the fresh long/short position can be taken at support level, if confirmed by the volume along with the candlestick pattern . There is no guarantee that support/ resistance will be held.
But if you have done your analysis perfectly, you will succeed with proper money management, in the longer run .
Application of Dow theory in the Markets.
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