Limbo

Limbo

18-10-2022

09:42

In today's thread, we're going to discuss a concept simple to understand and also very effective. It is known as Dow Theory. By identifying changes in price and volume, it aids traders in understanding market movements better. 🧵(1/11)

There are six tenets of the Dow Theory •The market discounts everything 🔪 •There are three market trends 3️⃣ •These trends have three phases 3️⃣ •Averages must confirm each other ✅ •Volume must confirm the trend ✔ •Trends continue until a prominent reversal takes place 🔃

Now we'll go through all these tenets to understand them better. 1. The market discounts everything: The price on the chart reflects every element and piece of information that may have an impact on supply and demand. (3/11)

2. There are three market trends according to Dow: •Primary •Secondary •Minor (4/11)

3. Trends have three phases: •Accumulation: Beginning with the assumption that a turning moment is unavoidable, intelligent investors first begin investing in the market. (5/11)

•Re-Accumulation: After an uptrend, a range-bound condition develops. It is a waiting period or period of preparation before a new leg up. •Distribution phase: Excessive buying by investors/traders defines this panic phase. You should book your profits at this point. (6/11)

4. Averages must confirm each other: A single index cannot demonstrate a market trend. The same opinion should be reflected in every index. For instance, the S&P 500 index should climb upward, followed by the Bitcoin index if there is a bullish trend. (7/11)

5. Volume must confirm the trend: Depending on whether the price is moving in the direction of a trend or in reverse, volume either rises or falls. Dow regarded volume as a secondary indicator. (8/11)

6. Trends continue until a prominent reversal takes place: The main principle of the technical approach used in market analysis is that trends continue until an outside source causes them to shift direction. Of course, there are reversal signals we can look for. (9/11)

Some reversal signals like: Price action: •Trend exhaustion •Break of support/resistance •Reversal patterns •Trendline breakdown Indicators: •Moving average cross/Breakdown •Momentum exhaustion •Momentum overbought/overbought (10/11)

The Dow Theory still holds true in today's trading environment despite being more than a century old. This is so that traders can benefit from identifying and capitalizing on market trends by comprehending the Dow Theory. (11/11)



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