Dow Theory: Trend Remains In Effect Until Clear Reversal Occurs

The reason for identifying a trend is to determine the overall direction of the market so that trades can be made with the trends and not against them. As was illustrated in the third tenet, trends move from uptrend to Downtrend which makes it important to identify transitions between these…

Dow Theory : Using Volume must Confirm The Price 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…

Dow Theory: Market Indexes Must Confirm Each Other

Under Dow theory, a major reversal from a bull to a bear market (or vice versa) cannot be signaled unless both indexes (traditionally the Dow Industrial and Rail Averages) are in agreement. For example, if one index is confirming a new primary uptrend but another index remains in a primary…

Dow Theory: The Three Phases Of Primary Trends

Primary Upward Trend (Bull Market) The Accumulation Phase The first stage of a bull market is referred to as the accumulation phase, which is the start of the upward trend. This is also considered the point at which informed investors start to enter the market. The accumulation phase typically comes…

The Market Discounts Everything

The first basic premise of Dow theory suggests that all information – past, current and even future – is discounted into the markets and reflected in the prices of stocks and indexes. That information includes everything from the emotions of investors to inflation and interest-rate data, along with pending earnings announcements…