๐ The Six Pillars of Dow Theory: Keys to Understanding Market Movement
Dow Theory is based on six fundamental principles that outline market movement and help you understand its true direction:
1. The market reflects everything
Any news, rumor, analysis, or even investor emotions... all of these are reflected in the price immediately.
2. The market moves in trends
The market is always in one of three trends: upward, downward, or sideways. Knowing the trend determines your decision.
3. The main trend has three stages
Accumulation phase (early gathering)
Public participation phase (strong, clear movement)
Distribution phase (smart money exits)
4. Indicators confirm each other
This means you need to see confirmation from more than one indicator (like industrial and transportation) before making a decision.
5. Trading volume confirms the trend
If the trend is upward, the volume must increase. If it decreases while prices are rising... be cautious.
6. The trend remains until proven otherwise
Do not assume that the trend has changed unless strong, clear signals indicate so.
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๐ In the next article: We will talk about the three types of trends and how to distinguish between them accurately.
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