Dow Theory and Stock Analysis

The Dow Theory has always been a very integral part of technical analysis. The Dow Theory was used extensively even before the western world discovered candlesticks.The Dow Theory is built on a few beliefs. These are called the Dow Theory tenets
Indices discounts everything The stock market indices discount everything which is known & unknown in the public domain. If a sudden and unexpected event occurs, the stock market indices quickly recalibrates itself to reflect the accurate value
02 Overall there are 3 broad market trends Primary Trend, Secondary Trend, and Minor Trends
03 The Primary Trend This is the major trend of the market that lasts from a year to several years. It indicates the broader multiyear direction of the market. While the long term investor is interested in the primary trend, an active trader is interested in all trends. The primary trend could be a primary uptrend or a primary down trend
04 The Secondary Trend These are corrections to the primary trend. Think of this as a minor counter reaction to the larger movement in the market. Example – corrections in the bull market, rallies & recoveries in the bear market. The counter trend can last anywhere between a few weeks to several months
05 Minor Trends/Daily fluctuations These are daily fluctuations in the market, some traders prefer to call them market noise
06 All Indices must confirm with each other We cannot confirm a trend based on just one index. For example the market is said to be bullish only if CNX Nifty, CNX Nifty Midcap, CNX Nifty Smallcap etc all move in the same upward direction. It would not be possible to classify markets as bullish, just by the action of CNX Nifty alone
07 Volumes must confirm The volumes must confirm along with price. The trend should be supported by volume.