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Market Indexes Must Confirm Each Other

The document discusses several key concepts of Dow Theory and Elliott Wave Theory. Dow Theory states that stock market indexes must confirm each other's trends through price movements and increasing volume. It also says a trend remains in effect until a clear reversal. Elliott Wave Theory proposes that markets trend and reverse in recognizable wave patterns consisting of impulsive and corrective waves.

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anish1012
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266 views9 pages

Market Indexes Must Confirm Each Other

The document discusses several key concepts of Dow Theory and Elliott Wave Theory. Dow Theory states that stock market indexes must confirm each other's trends through price movements and increasing volume. It also says a trend remains in effect until a clear reversal. Elliott Wave Theory proposes that markets trend and reverse in recognizable wave patterns consisting of impulsive and corrective waves.

Uploaded by

anish1012
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Market Indexes Must Confirm Each

Other
Dow Theory argues that similar indices must have
a correlation as they have the same exposure to
current economic conditions.
This concept is meant to apply to two stock
market average indexes:
- Dow Industrial Average
- Dow Rail Average
It asserted that two indexes have to confirm each
other by moving in the same direction before a
trend determination can be made.

Volume Must Confirm the Trend


According to Dow theory, the main signals for buying and
selling are based on the price movements of the indexes.

Volume is also used as a secondary indicator to help


confirm what the price movement is suggesting.

From this tenet it follows that volume should increase


when the price moves in the direction of the trend and
decrease when the price moves in the opposite direction
of the trend.
If volume confirms the trend in this manner, it is an
indication that the trend is strong and should continue.

Trend Remains in Effect Until Clear


Reversal Occurs
This tenet says that investor should not assume
the trend has changed until all the indicators
have confirmed the switch.
The investors needs to wait for clear picture of
trend reversal in the primary trend with a
secondary trend or brief correction.

Criticism of Dow Theory


The Dow Theory is criticized for being too late.
It is considered out dated and no longer an
accurate reflection of an economy.

ELLIOTT WAVE THEORY

Elliott Wave Theory


It was discovered by Ralph Nelson Elliott.
Market Prices
patterns.

Trend

and

Reverse

in

recognizable

These recognizable patterns take the shapes of Waves.


It is not an forecasting tool but a detailed description of
behavior of markets. Insight into mass psychology.
Elliott wave patterns consists of impulsive waves and
corrective waves.

Impulsive Waves
It is subdivided into 5
waves.
Always move in the
direction as the trend.
They are called as
impulsive
because
they powerfully impel
the market.

Corrective Waves
It is subdivided into 3
waves.
The main objective to
correct the impulsive
waves.
Corrective waves are
labeled using letters.

The Complete Cycle

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