DOW THEORY

 SUBMITTED BY
 SUNDARA VARMA
 19351066
 INTRODUCTION

• ORGINATED BY CHARLES DOW.

ACCORDING TO DOW “MARKET IS CONSIDERED AS HAVING 3 MOVEMENTS

“

 DAY TO DAY

 TWO WEEKS TO A FEW MONTH

 MAIN MOVEMENT COVERING THE LAST 4 YEARS.

THESE MOVEMENTS ARE CALLED

 DAILY FLUCTUATIONS – MINOR TRENDS

 SECONDARY MOVEMENTS/ TRENDS

 PRIMARY TRENDS

 THE 3 TRENDS ARE COMPARED TO THE RIPPLES, WAVE

AND

TIDES RESPECTIVELY.
• THE MARKET WILL EITHER GO UP HIGH [PEAK] OR
FALL DOWN [ TROUGH].

• REPRESENTS THE BEARISH AND BULLISH TREND.

 THEORY IS
BASED ON THE
HYPOTHESIS
1. NO INDIVIDUAL OR BUYER CAN INFLUENCE THE MAJOR TREND

OF THE MARKET, BUT CAN AFFECT THE DAILY PRICE MOVEMENT BY BUYING

OR SELLING HUGE QUANTUM OF SHARES.

2.MARKET DISCOUNTS EVERYTHING. EVEN THE NATURAL CALAMITIES SUCH

DEMONITIZATION, EARTHQUAKES, FIRE , PLAGUES GET’S QUICKLY DICOUNT

IN THE MARKET.

3. NOT INFALLIBLE.
WHAT IS AN UPWARD TREND? FOR A MARKET EACH PEAK AND TROUGH MUST

HIGHER THAN THE PREVIOUS POSITION RESPECTIVELY.

WHAT IS A DOWNWARD TREND? EACH NEW PEAK AND TROUGH IS LOWER THA

THE PREVIOUS POSITION RESPECTIVELY

 PRIMARY
TREND

• PRIMARY TREND IS A LONG TERM TREND SHOWING UPWARD OR

DOWNWARD MOVEMENT.

• BULL MARKET SHOWS 3 PEAKS, EACH HIGHER THAN THE PREVIOUS

• BEAR MARKET SHOWS 3 TROUGHS, EACH LOWER THAN THE OTHER
 SECONDARY / INTERMEDIATE
TREND

• REPRESENTS THE CORRECTION TO THE PRIMARY MARKET

• IS OF SHORT DURATION -- FEW WEEKS TO A FEW

MONTHS.

• MOVES IN THE OPPOSITE DIRECTION.

 MINOR TRENDS/ TERTIARY MOVES

• MINOR TREND MAY BE IN EITHER DIRECTION ON A DAILY PRICE

FLUCTUATIONS.

• TRIES TO CORRECT THE SECONDARY TREND MOVEMENT ,

• BUT POINTING TO THE UNDERLYING PRIMARY TREND

 SUPPORT AND RESISTANCE LEVEL

• STOCK REACHES DOWN TO A CERTAIN LEVEL AND THEN RISES –

SUPPORT LEVEL.

• IN THE SUPPORT LEVEL DEMAND FOR STOCK IS EXPECTED TO PREVENT

FURTHER FALL IN THE PRICE LEVEL.

• STOCK TOUCHES A CERTAIN LEVEL AND THEN DROPS – RESISTANCE

LEVEL.

• IN THE RESISTANCE LEVEL SUPPLY OF SHARES WILL BE HIGH AND

FURTHER RISE

IN PRICE IS PREVENTED.
 CRITICISIM OF
DOW THEORY
IT IS NOT A THEORY BUT AN INTERPRETATION OF
KNOWN DATA.

IT IS BASED ON HISTORICAL INTERPRETATION.

FALLIBLE, AS IT DEPENDS ON THE

INTERPRETATIVE ABILITY OF THE ANALYST.

THANK YOU