Dow theory focuses strongly on demand & supply to identify the trend. It is more reliable for a longer durtaion (2 years) and can’t be suitable for Intraday/short term trading.
2 main concepts
Buy = Demand > supply
Sell= Supply > demand.
Buy = Higher bottom higher top with high volume
Sell = Lower top lower bottom with high volume.
- : Dow theory is a trading strategy developed by Charles Dow. The basic idea of Dow Theory is that market price action reflects all available information and the market price movement is purely derived from demand & supply.
- : Line charts are used in Dow Theory. minimum look up period is 2 months and duration trend is 2 years.
- : market trend can be determined using demand and supply. High demand and less supply = Buy trend high supply and less demand = sell trend.
- : Dow theory is only reliable for longer period and it only indicates the trend and doesn't show the price movement. Also it cannot be used short term/intraday trading. Ir remains on top because the theory was built 100 years ago which has a relatively proven methodology in demand & supply. All other theories are based on Dow theory.
- : Buy = demand >supply, when demand is relatively stronger than supply Sell = Supply > demand, when supply is relatively stronger than demand. Trend is reliable for a longer duration min 20 days and 2 years.
- : support - Support is the level at which demand is strong enough to stop the stock from falling any further. Resistance is the level at which supply is strong enough to stop the stock from moving higher.