Dow Theory

Objective of the dow theory is Identifying the trend in other words to find the demand and supply. Line chart used for dow theory, minimum look up period is 2 years on daily basis, duration of trend for dow theory is 2-3 months. We have to take the line chart of the any company and mark the major tops and bottoms. Then identify the higher bottom/top and lower top/bottom with comparing to previous top/bottom. Following criteria will help us determine the market trend.
1.Higher bottom – higher top / Demand / with high volume/ Bullish
2.Lower top – lower bottom/ Supply / with high volume / Bearish. When the demand is greater than the supply the price increases and after reaching a certain level the supply increases as a result the price falls. This zone is known as resistance. When the price falls supply is greater than demand it reaches a level where the demand increases and this zone is known as the support.