๐ Peaks and Troughs + Indicator Confirmation: How to Determine the True Trend in the Market?
In Dow Theory, determining the trend does not rely on your feelings or a bullish candleโฆ but on clear objective signals, the most important of which are:
1. Successive Peaks and Troughs
Dow Theory states:
An uptrend occurs when there is:
โฌ๏ธ A new peak higher than the previous peak
โฌ๏ธ A new trough higher than the previous trough
A downtrend is the exact opposite:
โฌ๏ธ Every peak lower than the one before it
โฌ๏ธ And every trough lower too
Any break of this pattern = A potential signal for a trend reversal.
2. Confirmation of Indicators with Each Other (Intermarket Confirmation)
The most important rule in Dow:
> "A trend is not considered confirmed unless all indicators agree on it."
What does that mean?
For example, if the Dow Jones Industrial Average breaks a bullish peak, the Dow Jones Transportation Average must do the same, or at least support the trend.
If there is a contradiction? ๐คจ
That means the trend is not confirmed, and a sudden reversal could happen.
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๐ In the next article (Part 5.2): We will discuss the role of trading volume, and how to differentiate between a genuine breakout and a trap that lures you into buying or selling.
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