- Origin: Charles Dow, co-founder of the Wall Street Journal and Dow Jones & Company, formulated Dow Theory in the late 19th century.
- Development: Dow's theory was based on his editorials in the Wall Street Journal where he analyzed the behavior of the stock market.
- Significance: This theory is the cornerstone of technical analysis, providing a systematic approach to understanding market trends and behaviors. It laid the groundwork for many other technical analysis theories.
2οΈβ£ Basic Principles of Dow Theory
- Market Discounts Everything: All available information, including news, earnings reports, and even future expectations, is already reflected in stock prices. Therefore, analyzing price movements alone can provide insights into market behavior.
- Three Trends:
- Primary Trends: Major movements lasting from months to years. They represent the overarching direction of the market.
- Secondary Trends: Intermediate corrections or reactions against the primary trend, lasting from weeks to a few months. They are often seen as pullbacks in an uptrend or rallies in a downtrend.
- Minor Trends: Short-term fluctuations lasting from days to a few weeks, often seen as noise within the larger trends.
- Trends Have Three Phases:
- Accumulation Phase: Informed investors start buying or selling stock against the prevailing trend.
- Public Participation Phase: The broader market catches on, and price movements become more pronounced.
- Distribution Phase: Informed investors begin to sell off their holdings to the less informed public, typically marking the end of the trend.
- Confirmation and Volume: A trend must be confirmed by price movements across major market indices and should be supported by trading volume.
- Trends Continue Until a Clear Reversal: Market trends are expected to persist until definitive signals indicate a reversal, even amidst temporary fluctuations.
13 Stock Chart Patterns that You should know ππΉ
A thread ππ¬
On a very basic level, stock chart patterns are a way of viewing a series of price actions that occur during a stock trading period. It can be over any time frame β monthly, weekly, daily, and intra-day.
If you can learn to recognize these patterns early, they will help you to gain a real competitive advantage in the markets. Just as technical indicators can help your technical analysis trading, stock chart patterns can contribute to identifying trend reversals and continuations.