On January 31st, Charles H. This method holds good in watching and determining the flood tide of the stock market. Confirmation by both is an integral part of the Dow Theory. Finally, a breakout above the previous rally high by both, constitutes a BUY Signal for the developing Bull market.
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On January 31st, Charles H. This method holds good in watching and determining the flood tide of the stock market. Confirmation by both is an integral part of the Dow Theory. Finally, a breakout above the previous rally high by both, constitutes a BUY Signal for the developing Bull market. More than one bounce can occur within the confines of the bounce highs and the lows. Any such non-confirmation by the other Average is inconsequential.
Other acceptable patterns are as follows: BUY B-2 shown above 1. Market Lows 2. Bounce 3. Pullback one index makes a new low 4. Break up. SELL S-2 shown below 1.
Market Highs 2. Pullback 3. Bounce one makes a new high 4. Break down. BUY B-3 shown below 1. Pullback 4. Break up one only 5.
Pullback other makes lower low 6. Break up over both bounce highs. SELL S-3 shown below 1. Pullback other makes a new low 5.
Bounce first makes a newer high 6. Break down below both pullback. BUY B-4 shown below 1. Market Low 2. Pullback one may go to new low 4. Lower bounce on one or both 5. Lower pullback another new low 6. Break up over first bounces. BUY B-5 1. New all-time highs on both. Other combinations of the above can occur with non-confirmations divergence at various points and still qualify as "signals". New all-time highs negate the need for pullbacks to confirm a new Buy.
The following record is for the original Dow Theory discussed above. The Dow Theory is the oldest stock-market timing system in widespread use today. Its popularity is reason alone to pay close attention, and is also worth following because its long-term track record is enviable.
Read the article HERE. All Rights Reserved. Web Design by S-FX. Search for:. Subscriber's Login. The "few hypotheses": Manipulation is possible day-to-day but the primary trend cannot be manipulated. The Averages discount everything except acts of God.
The theory is not infallible. The "definite theorems": There are three movements of the averages. The first, and most important, is the primary trend. The second, and most deceptive is the secondary reaction. The third, and usually unimportant, is the daily movement. Both the Industrial and Transportation averages must confirm a trend.
The determination of a major trend has come to be known as a signal to Buy or Sell, although Dow never called them such. The chart represents how the Dow Jones Industrial Average and the Transportation Average might look under the most usual BUY signal B-1 : More than one bounce can occur within the confines of the bounce highs and the lows.
Break down BUY B-3 shown below 1. Break down below both pullback BUY B-4 shown below 1. Break up over first bounces BUY B-5 1. New all-time highs on both Other combinations of the above can occur with non-confirmations divergence at various points and still qualify as "signals".
The Dow theory on stock price movement is a form of technical analysis that includes some aspects of sector rotation. George Schaefer organized and collectively represented Dow theory, based on Dow's editorials. Dow himself never used the term Dow theory nor presented it as a trading system. The six basic tenets of Dow theory as summarized by Hamilton, Rhea, and Schaefer are described below. Alfred Cowles in a study in Econometrica in showed that trading based upon the editorial advice would have resulted in earning less than a buy-and-hold strategy using a well diversified portfolio.
The Dow Theory
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Dow Theory has been around for almost years, yet even in today's volatile and technology-driven markets, the basic components of Dow Theory still remain valid. Developed by Charles Dow, refined by William Hamilton and articulated by Robert Rhea, Dow Theory addresses not only technical analysis and price action, but also market philosophy. Many of the ideas and comments put forth by Dow and Hamilton became axioms of Wall Street. While there are those who may think that the market is different now, a read through Rhea's book, The Dow Theory , will attest that the stock market behaves the same today as it did almost years ago. At a high level, Dow Theory describes market trends and how they typically behave. At a more granular level, it provides signals that can be used to identify and subsequently trade with the primary market trend.