Introduction to Dow Theory

By: Aditya www.trend-traders.com

INVESTING 101 March 20, 2009

Dow Theory ³ The Genesis of Technical Analysis The origins of modern technical analysis can be traced back to the work and theories of Charles Henry Dow (1851 ³1902). As a young man, Dow arrived in New York in 1879 to be a reporter for a financial news service. By 1882 he and Edward DJones had founded Dow Jones and Company and were delivering their own news items to Wall Street financial houses. By studying the closing prices of shares Dow concluded that it was possible to produce a market ¶barometer· or stock average that could be used by investors to measure the overall performance of the stock market. In July 1884, Dow produced his first market measure calculated from the average of eleven stocks.

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DOW THEORY
‡There are 6 basic tenets of Dow Theory 1. The market has three movements 2. Trends have three phases 3. The stock market discounts all news 4. Stock market averages must confirm each other 5. Trends are confirmed by volume

6. Trend exist until definitive signals prove that they ended

1. The market has three movements ‡ Major Trend (6 month ² 1 year) ‡ Medium Trend (2 ² 3 month) ‡ Minor Trend (daily movement) .

Trend .

Trends have three phases .2.

The Market Cycle ‡ Accumulation Phase ‡ Participation Phase (Bullish / Bearish) ‡ Distribution Phase (Excess. ranging) . Panic.

Stock market averages must confirm each other .4.

Inter Market Correlation Angka positif menunjukkan pergerakan harga yang searah Angka negatif menunjukkan pergerakan harga yang berlainan arah .

Inter Market Correlation Angka positif menunjukkan pergerakan harga yang searah Angka negatif menunjukkan pergerakan harga yang berlainan arah .

5. Trends are confirmed by volume (convergence) .

Trends are confirmed by volume (Divergence) .5.

Peak & Through .

Peak & Through .

Begin and End of Bull trends Return line acts as resistance BUY SELL Price Trend line acts as support www.co.trendtrader.cc .

Peak & Trough .

Optimizing Profit Factor HSI market August 7 2007 .

Optimizing Profit Factor HSI market August 7 2007 Running on 1 minute/ 5 minute chart .

How To Use Peak and Trough Analysis www.trendtrader.co.cc .

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SHORT TERM BAR CHART ANALYSIS WHO Charge in The market .

Meaning of Bar component ‡ Opening price ±Tend to reflect the opinion of the public reacting in emotional way to what happening ‡ Closing price .tell us where the daily bull and bears was resolve ‡ HIGH ± represent the maximums power of buyer where supply overcome demand seller took control from buyer ‡ Low ± the maximum power of seller .

trendtrader.cc . A down-trend is a series of bars with lower highs and lower lows www.co. An up-trend is a series of bars with higher highs and higher lows.UP-DOWN TREND CONFIGURATION The trend is determined in accordance with Dow theory.

Conversely. .When does a Trend Start and End? ‡ An up trend is started by a bar with a higher high and higher low than the previous bar. a down trend is started by a bar with a lower high and lower low than the previous bar.