🔍 Dow Theory
The foundation upon which modern technical analysis schools are built! 🧭
Let's dive together into its principles to understand market trends more deeply 💡
👨🏫 Who is Charles Dow?
• The first to create an index that reflects the overall performance of the American market.
• Known as the “father of modern technical analysis.”
• He didn't write a book, but his friend Nelson compiled his articles into a book called:
📘 The ABC of Stock Speculation
🔑 The six principles of Dow Theory:
1️⃣ Price reflects everything
Price movements encompass all factors: economic, political, psychological.
2️⃣ The market moves in three directions
• Primary trend (long-term)
• Secondary trend (medium-term)
• Minor trend (short-term)
3️⃣ The market goes through three phases
• 📉 Accumulation phase (smart money starts buying)
• 📈 Participation phase (public enters the market)
• 💰 Distribution phase (smart money starts selling)
4️⃣ Indicators confirm each other
The industrial index should move with the shipping index, for example, because the relationship between them is interconnected.
5️⃣ Trading volume confirms the trend
The more the trading volume increases in the same direction of movement, the stronger the trend.
6️⃣ The trend continues until reversal signals appear
The trend does not contradict itself unless clear opposite signs appear.
📚 Dow Theory = The cornerstone for understanding the market.
Whoever masters it can read trends with confidence and calm 🧘♂️
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