Dow theory was proposed by Charles H Dow. It analyses how demand and supply decide the market trend. It analyses market trend using price, volume and duration. Open the daily chart for a minimum period of 2 years. Mark significant tops and bottoms. Then mark HT,HB, LT and LB. Tops represent sellers zone and bottoms represent buyers zone. HB-HT represents bullish trend. Here you can create long position. Buy when price breaches the previous HT. Decide reward and risk for stop loss and profit. Similar LT-LB represents bearish trend. Here short position can be created. Sell when price goes below previous LB. At these positions there should be good volume and the duration between successive tops and bottoms should be minimum of one month. Not a good tool for short term trading. However it is good for longer term of 3 months and beyond. It studies accumulation and distribution. Uses historical data.
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