Dow theory is the first and oldest theory, introduced by a journalist Charles H Dow in 1882.
Instead just looking at the price patter of stock, Dow researched on industry as whole how and when the market tends to provide the signals for bullish or bearish trend.
Dow theory is simple concept that, using the line chart one can spot the major area where Demand and supply and act accordingly to enter into trade, it suggests one to take position on break out from previous Higher High or Lower Low and with volume supported, also Dow suggest to see there is no divergence between Index/Sector and the Stock.
It is more useful to indentify the long term trend rather than short term trend as it requires at least 2 years of data to do this analysis.
Some people also commented that, Dow theory doesn’t give signal in early stage as it takes long time frame to confirm the trend.
Dow theory conditions :
Bullish : 1. Higher Low – Higher High Sequence 2. Confirmed with High Volume and 3. In line with Index / Sector / Stock
Bearish : 1. Lower High – Lower Low sequence 2. Confirmed with High Volume and 3. In line with Index / Sector / Stock
Dow Theory – Conditions – Demand and Supply Zone – Time frame required
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Stock Analysis
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