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if a higher top is followed by a higher bottom- create long position(stop loss- higher bottom).
if a lower top is followed by a lower bottom- create a short position(stop loss- lower top)
it can only be used for knowing the market trend and it cannot be used for short term trading to know the price behavior.
the market trend could be determined using the higher bottom, higher top, lower bottom and lower top as reference points along with the volume of trade taken place at the points.
the dow theory helps us understand the market behavior of a stock using the demand and supply chain based on its past price movements.
line charts are used in dow theory using minimum two years data and the duration for trend forecasting would be 2-3 months.
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