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To determine market trend using Dow theory, we should open line chart of a given stock of around 2-year period. Then we should locate the major tops and major bottoms. Among the major tops marked we should identify the higher tops and higher bottoms.
If we find higher bottom – higher top sequence, then it is in bullish trend, then we can take long position at the previous top.
If we find lower top – lower bottom sequence, then it is in bearish trend, then we can take short position at the previous bottom.
We should never contradict the market that is we should neither sell at top or buy at bottom.
To determine the market trend using Dow Theory, we should open daily line chart for two years and we should identify the tops and bottoms. Then the first top becomes the top and bottom becomes high bottom and the subsequent top if higher than first top becomes high top, so the higher bottom and higher top becomes the bullish trend, time to buy the stock. When a top is created lower than the previous top then this becomes lower top and the bottom lower than the previous bottom then this becomes lower bottom. When lower top and lower bottom trend is created then it is bearish trend and it is time to sell the stocks.
In the two year line chart if we can find the higher bottom – higher top sequence, then it is in bullish trend, then we can take long position at the previous top.
If we find lower top – lower bottom sequence, then it is in bearish trend, then we can take short position at the previous bottom.
Trend will be determined through 2 year line chart, if we can find Highest Bottom, Highest Top sequence, then it is in bullish trend, hence we can take long position at the previous top
If we find Lower Top, Lower Bottom sequence, then it’s bearish trend, then we can take short position at the previous bottom
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