DOW introduced this theory to study the market to understand the market trend. The theory is based on demand and supply, which can be identified using Price and Volume
The line charts are used for dow theory. Minimum look up period should be 2 year and the duration of trend forecasting can be for 2 months.
It is a concept in technical analysis that the movement of the price of a security will tend to stop and reverse at certain predetermined price levels.

  • : Dow Theory is invented by Charles H Dow in 19th Century. Since the all the parameters of the company is not available for fundamental analysis, DOW introduced this theory to study the market to understand the market trend. The theory is based on demand and supply, which can be identified using Price and Volume. Dow Theory gives the direction on the market movement and can be used for buying and selling in 2 months’ timeline.
  • : The line charts are used for dow theory. Minimum look up period should be 2 year and the duration of trend forecasting can be for 2 months.
  • : Steps to determine the market trend using Dow Theory, 1) Take the data of approximately 2 years and plot it into line chart. 2) Mark the tops and bottoms. 3) Qualify the tops and bottoms as Bottom, Higher Bottom, Top, higher Top and lower top and lower bottom. 4) Look for a sequence to find the trend. If the sequence is formed with Higher bottom and Higher Top with significant volume it is a Bullish trend. If the sequence is formed with Lower bottom and Lower Top with significant volume it is a Bearish trend.
  • : Dow theory provides only directional indication and only for the longer duration (2 Months) and does not indicate the shorter reflections in the market. But this theory is top of analysis, since it is proven for many years and good for deriving the trend easily. The major drawback of Dow theory is, it does not explain the price behavior of the stock/securities. But still the Dow theory remains on the top as the core of the Dow theory analysis considers supply – Demand which plays the key role in the technical analysis. All theories that have evolved today has taken Dow theory as their base and no one could contradict his theory.
  • : Dow theory is based on demand and supply. When Demand > Supply, Buy the stocks. When Supply > Demand, Sell the stocks. If we find the sequence of Higher bottom and Higher Top, we can buy the stock as the trend is bullish. Whereas if the sequence is formed by Lower top and Lower bottom, we can sell the stock as the trend is bearish.
  • : Support and Resistance are the external events that influence the demand and supply in the market, which in turn resist or support the price to go up or down. It is a concept in technical analysis that the movement of the price of a security will tend to stop and reverse at certain predetermined price levels. Support level is a level where the price tends to find support as it is going down and Resistance level is a level where the price tends to find resistance as it is going up
1 Comment
  1. vignesh 4 years ago

    Hi,
    your answers are brief and appropriate.

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