Dow Theory objective is to identify demand and supply. It will give market direction as positive or negative. Line chart with minimum 2 years of data need to be used to forecast the trend for 2 to 3 months. We need to mark the Tops & Bottoms, Qualify them as Higher Top / Bottom, Lower Top / Bottom; Follow the sequence ( with volume) to determine i.e, Higher Bottom – Higher Top sequence to be considered as Bullish Trend , Lower Top – Lower Bottom sequence to be considered as Bearish Trend. The major critics against Dow Theory is that it can not be used in short term, it can be used only in long term. It still remains on top because it can predict bullishness and bearishness. Dow theory cannot be used for Intraday and short term trader. Support is the price level where demand is strong to prevent the price fall. Resistance is price level where supply is more to prevent the price gain.
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