What is Dow Theory?
Dow believed that the stock market as a whole was a reliable measure of overall business conditions within the economy and that by analyzing the overall market, one could accurately gauge those conditions and identify the direction of major market trends and the likely direction of individual stocks.
What type of charts used, minimum look up period, duration of trend forecasting for Dow Theory?
the Line charts are used for dow theory. minimum look up period should be 2 months.
How to determine the market trend using Dow Theory?
Price movements consist of three trends
The Primary or Major Trend that usually lasts at least one year by can continue for many years. This trend is usually responsible for a price movement, up or down, of at least 20%. The Primary Trend is interrupted by the Secondary Trend that moves against the Primary Trend to correct it when it becomes over stretched.
The Secondary Trend interrupts the movement of the Primary Trend, moving in the opposite direction. However, identifying a Secondary Trend while it is in the process of development is very difficult. The Secondary Trend lasts for at least three weeks but can continue for several months and usually retraces at least 1/3 of the previous price movement. At times the Secondary Trend can fully retrace the preceding movement but it often stops at 1/2 or 2/3 of the preceding movement.
The Minor Trend is the day-to-day fluctuations of the averages. It usually lasts less than six days and is not given any importance in Dow Theory.
What are the major critics against Dow Theory? How come it remains on top of any analysis?
One of the criticisms is that following the theory will result in an investors acting after rather than before or at market tops and bottoms. With Dow Theory,
