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Dow theory suggested two indices for the markets, namely the Dow Jones Industrial Average (DJIA) and the Dow Jones Transport Average . It is strongly suggested to see that both these averages are moving in the same direction . This will confirm the direction of a trend and it determines the market trend.
The market trend can be determined by:
1- Bullish: Higher bottom-higher top sequence; High volume; One should buy at the previous top and stop loss at the previous bottom. Return margin should be the difference between the previous top and bottom.
2- Bearish: Lower top -lower bottom sequence; High volume; One should sell at the previous bottom and stop loss at previous top. Return margin should be the difference between the previous top and bottom.
Higher top Higher bottom – the trend is bullish
Lower top Lower Bottom – the trend is bearish
using dow theory we can see whether demand > supply or supply > demand. This can be decided based on price and volume.
<p style=”box-sizing: border-box; margin: 0.85em 0px; direction: ltr; color: #777777; font-family: ‘Roboto Slab’; font-size: 13px;”>Higher top Higher bottom sequence – the trend is bullish</p>
<p style=”box-sizing: border-box; margin: 0.85em 0px; direction: ltr; color: #777777; font-family: ‘Roboto Slab’; font-size: 13px;”>Lower top Lower Bottom sequence – the trend is bearish</p>
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