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Dow theory is one of the oldest method to analyze the market trend based on demand and supply. It can be used for long term investment or trading.
Dow Theory helps us to understand the market trend in a long run.
The analysis in this theory is based on the Demand and Supply in the market.Dow theory is the foundation of technical analysis. It has undergone various modifications to get good results in technical analysis.
Dow theory is the very old but gold technical analysis tool which explains the market trend of a stock. It explains the trend using market price and volume traded. It helps us to know whether the stock is in bullish trend or in bearish trend. It mainly states never to contradict the market that is neither buy at bottom or sell at top.
Mr. Charles H Dow was the first person to identify the market movement rather looking into the company aspects. He saw the buying and selling in the market and created trend line based on the buy and selling pattern. Hence it is considered as the gold or reference point for all analysis. According to Dow Theory when marked is considered as bullish with demand is greater than supply with high bottom and high top trend with high volumes happens and this indicates a buy call. However, according to Dow Theory the market is bearish when supply is greater than demand and lower top and lower bottom trend with high volumes happens and this indicates a sell call. Here market trend has to be followed and not contradict the market by selling in the top and buying in the bottom.
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