DOW THEORY-
TO observe market price movement
To follow the trend to reach demand and supply through price and volume.
REQUIRED-
Line chart is required.
minimum look up period is 2 years.
trend forecasing- 2-3 months.
METHOD-
STEP 1 open char–> daily charts–> min 2 years.
STEP 2- spot major TOP and BOTTOM
STEP 3- qualify top and bottom.(higher and lower)
STEP 4 – Identify sequence -HB-HT—> BULLISH- CREATE LONG—> CHK VOLUME
Identify sequence -LT-LB—> BEARISH- CREATE SHORT—> CHK VOLUME.
PREDICTION-
D > S –> BULLISH (BUY-LONG)
S>D —> BEARISH (SELL-SHORT)
Reliable– previous bottom and previous top
Important aspect of the Dow Theory
When the system signaled a bearish trend, stocks were sold.the risk (volatility) is significantly reduced.