Dow theory- supply zone- S > D = BEARISH = SELL.
demand zone- D > S = BULLISH= BUY.

• : Dow theory helps us to understand the demand and supply of a company with minimum of 2yrs data.
• : line charts and used to mark the top and bottom. bar charts are used to identify the volume of the trade. duration of trend forecasting is minimum 2 years. Minimum look up period is wait to wait for the price to go up after following higher bottom - higher top sequence with high volume of trade.
• : 1. data of the company (min. 2yrs) 2.plot it in line chart. 3. mark top and bottom. 4. mark higher/lower top & higher/lower bottom. 5. follow the higher bottom- higher top sequence. 6. look for high volume of the trade. 7. top tell us the supply zone(bearish) and bottom tells the demand zone (bullish). 8. enter into the market by comparing with the previous top and bottom peak.
• : dow theory explains the past market trend. there is the possibility of missing many bullish and bearish trend. it didn't tell anything about the future market. it is the past analysis which may be wrong at times. but it is very fundamental to know the demand and supply zone of a company's past to go for long or short. identifying the demand and supply is basic for the market analysis, which is well explained by dow theory.
• : 1.Bullish: higher bottom- higher top sequence + high volume. = long position. (Buy a share when the trend crosses the previous top) 2. Bearish: lower top- lower bottom sequence + high volume= short position (sell a share when market trend crosses the previous bottom) good for weekly trend (2-3 weeks)
• : support is the lower level of a stock reaches over a time period. resistance is the high level; a stock price reaches over a time.
• : how to calculate support and resistance? Its calculating purpose?
1 Comment
1. Naresh 4 months ago

Hi,

Your Question 1 :: how to calculate support and resistance? Its calculating purpose?
For support and resistance you no need to apply any formula, instead you can take average high price for resistance and average low price for support line.

Support and resistance levels are important points in time where the forces of supply and demand meet. Support is the level at which demand is strong enough to stop the stock from falling any further Meanwhile resistance is the level at which supply is strong enough to stop the stock from moving higher but there is no assurance that the support or resistance will hold.