📉 Dow Theory: Part 1 — The Principle of Confirmation and Volume
When Charles Dow laid the foundation of technical analysis, he didn’t just focus on price movements—he emphasized confirmation and volume as key pillars to validate trends.
In this part, we break down two of the most critical concepts in Dow Theory that every trader should understand deeply.
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🔁 1. Confirmation: Two Indexes Must Agree
Dow believed that for a trend to be valid, different indexes must confirm each other. In his time, that meant the Dow Jones Industrial Average and the Dow Jones Transportation Average.
> Why? Because if industries are booming, transportation should also be thriving—products don’t move themselves.
✅ If both indexes are showing a bullish pattern → the market trend is confirmed.
❌ If one is bullish and the other is bearish → warning sign, trend might be weak or false.
Modern Application:
Today, many traders apply this concept using other sectors or correlated asset classes. For example:
Tech stocks vs. semiconductors
S&P 500 vs. Nasdaq
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📊 2. Volume Must Support the Trend
Dow argued that volume should expand in the direction of the trend.
It acts as fuel 🔥 for the market move.
In an uptrend, volume should increase when prices rise and decrease during pullbacks.
In a downtrend, volume should rise during declines and drop during rebounds.
> If volume doesn't support the trend → risk of reversal or weakness.
Why it matters: Volume confirms that investors are committed. Low volume during a breakout or breakdown might mean the move is not real.
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🎯 These two principles—confirmation and volume—remain valid in today’s markets. If you're not watching them, you might be trading blind.
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📌 Was this helpful? Like & follow for part two where we dive into the final pillar: “Trends Remain in Effect Until Reversed!”
🧠 Real trading starts with real understanding… and we’re here to give you that edge.$ETH $BTC $XRP #ETHBreaks3700
