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Dow theory tells the investor when to buy and sell stocks considering demand and supply.
- When demand >supply(relatively stronger ),it is the time to buy.
- When demand<supply(supply relatively stronger),it is the time to sell.
Dow theory gives idea to the investor/trader the stock trend i.e. bullish or bearish. it is ideal for long term investors.
Demand > Supply – Create long position
Demand < Supply – Create short position
Dow theory is basically used for “Trend Analysis”
Dow theory is used to derive the market trend by following the market based on demand and supply levels with volume .It helps the traders to decide when to enter and exit the market by view the chart (bullish/bearish).
DOW THEORY is invented by CHARLES H.DOW to identify the market trend in a technical way in the 19th century.
On a line line chart, we have to mark the Higher top,Higher bottom,Lower top,Lower bottom.If the sequence is Higher top-Higher bottom it is BULLISH,Lower top-Lower bottom it is Bearish.
2years graph is necessary for forecasting the trend.
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