Dow Theory – Stage 5

Dow theory is studying the stock price movement and the trend. Daily line charts are used with a look up period of 2 years. The duration of trend forecasting is 2 months.Dow theory cannot be applied in intraday trading as it gives you the market trend for long term. As it is one of the most reliable way of analysis it remains on top of the analysis. Daily line charts are used with a look up period of 2 years. Identify the major tops and major bottoms. then they should be categorized as higher top higher bottom and lower top lower bottom. having a higher top and higher bottom is indicative of bullish trend and lower top followed by lower bottom is indicative of bearish trend. The duration of trend forecasting is 2 months. When the trend is bullish with higher bottom and higher top long position is advisable and when the trend is bearish with lower top and lower bottom short position should be taken. Even when the trend forecast duration is 2 months it is more reliable as long as the trend continues and it is important to follow the trend.