According to Dow an uptrend is consistently rising peaks and troughs. And a downtrend is consistently rising lowering peaks and troughs. Here the line chart is used to mark the high tops & bottoms .The minimum look up period one to two years.
support and resistance are certain predetermined levels of the price of a security at which it is thought that the price will tend to stop and reverse. These levels are denoted by multiple touches of price without a breakthrough of the level.
- : Dow Theory (Dow Jones Theory) is a trading approach developed by Charles Dow. Dow Theory is the basis of technical analysis of financial markets. The basic idea of Dow Theory is that market price action reflects all available information and the market price movement . Dow used to say that unless both Industrial and Rail Averages exceed a previous peak, there is no confirmation of inception or continuation of a bull market. Signals did no have to occur simultaneously, but the quicker one followed another – the stronger the confirmation was.
- : Line chart is used Minimum look up period is 2 yrs Duration of trend forecasting is one to three months.
- : Steps to determine the market trend using Dow Theory, Take the data of approx 2 years and plot it into line chart. Mark the tops and bottoms. Qualify the tops and bottoms (ex Bottom, Higher Bottom, Top, higher Top) Look for a sequence 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 bottom and Lower Top with significant volume it is a Bearish trend.
- : 1, Dow Theory is biased toward late recognition of a change in trend to minimize the costs of wrongly identifying a change in trend. 2.A second criticism of Dow Theory is that the different trends are not strictly defined. Often the interpretation of price swings is difficult to assign to a specific trend type. By understanding Dow Theory, traders can benefit from spotting and exploiting trends in the market.
- : According to Dow theory,If the sequense is formed with higher top and higher bottom its in uptrend so buyers can buy at the point when H.B breaks the H.T with high volume. If the sequense is formed with lower top and lower bottom then its an down trend and sellers can sell at the point at which lower top breaks the lower bottom with high volume.
- : Support: Support is any price point which prevents the price from falling further. And depending on whether it renders a temporary pause or a permanent reversal, the support defines its strength. The demand is higher than the supply at supports. Resistance Resistance is a point that makes the price action to pause or change its course during a rise. The supply is more than the demand at resistance.