One of the most important concepts one needs to know in technicals:
Dow Theory 101.
But most people don't know what it is.
This is the only explanation you need:
Collaborated with @niki_poojary
๐งต
Dow Theory 101.
But most people don't know what it is.
This is the only explanation you need:
Collaborated with @niki_poojary
๐งต
6 Principles of Dow Theory:
1. Price discounts everything
2. Market has different phases
3. Market discounts everything
4. Broader Indices should be in the same trend
5. Volume must confirm the trend
6. Trend Remains in Effect unless reversal occurs
Let's Go โ
1. Price discounts everything
2. Market has different phases
3. Market discounts everything
4. Broader Indices should be in the same trend
5. Volume must confirm the trend
6. Trend Remains in Effect unless reversal occurs
Let's Go โ
Principles of Dow theory
1st Principle: Market will move in a trend:
In this trend, there are three more sub-trend.
1) Primary Trend
2) Secondary Trend
3) Minor Trend
1st Principle: Market will move in a trend:
In this trend, there are three more sub-trend.
1) Primary Trend
2) Secondary Trend
3) Minor Trend
What is a primary trend?
Here is the monthly chart of Bank Nifty, clearly going up.
Which means it's primary trend is bullish.
Second Trend?
Opposite to the primary trend just to remove weak hands.
(Attached in the second chart below)
Minor Trend: Small speculative moves
Here is the monthly chart of Bank Nifty, clearly going up.
Which means it's primary trend is bullish.
Second Trend?
Opposite to the primary trend just to remove weak hands.
(Attached in the second chart below)
Minor Trend: Small speculative moves
2nd Principle: Market has different phases
1. Accumulation Phase
Smart money buys in anticipation that the market will go up, retailers don't believe
Public Awareness Phase
Retailers participate in this phase
Bubble phase:
People deploy funds like crazy (market is overbought)
1. Accumulation Phase
Smart money buys in anticipation that the market will go up, retailers don't believe
Public Awareness Phase
Retailers participate in this phase
Bubble phase:
People deploy funds like crazy (market is overbought)
3rd Principle: Market discounts everything
Price discounts all risks and opportunities.
No need to know the economy and fundamentals news etc.
Price discounts all risks and opportunities.
No need to know the economy and fundamentals news etc.
4th Principle: Broader Indices should be in the same trend
The bigger indices should be in the same trend.
If Bank Nifty is going up and IT or Pharma is down we will not consider this as broader indices in the same trend.
If all indices are upwards, then uptrend is confirmed.
The bigger indices should be in the same trend.
If Bank Nifty is going up and IT or Pharma is down we will not consider this as broader indices in the same trend.
If all indices are upwards, then uptrend is confirmed.
5th Principle: Volume must confirm the trend
Look at this chart of Wipro on the daily timeframe.
When it was going up, look at the volume bars beneath.
Massive buying during an up move confirms that strong hands are buying this.
Look at this chart of Wipro on the daily timeframe.
When it was going up, look at the volume bars beneath.
Massive buying during an up move confirms that strong hands are buying this.
When to buy/sell?
Basically, we can know when to buy or sell based on the following;
1. If the price is going up and volume is going up then buy.
2. If the price is going down and volume is going up then sell.
Basically, we can know when to buy or sell based on the following;
1. If the price is going up and volume is going up then buy.
2. If the price is going down and volume is going up then sell.
6th Principle: Trend Remains in Effect unless reversal occurs
Whatever the primary trend is that will persist here.
For every secondary trend, investors will believe that a reversal has come but unless it is a clear reversal, the price will eventually follow the primary trend.
Whatever the primary trend is that will persist here.
For every secondary trend, investors will believe that a reversal has come but unless it is a clear reversal, the price will eventually follow the primary trend.
These were the 6 principles of Dow theory.
I hope they were helpful to you.
Can try answering:
1. In which phase are we currently in?
2. What do the volumes currently tell you?
I hope they were helpful to you.
Can try answering:
1. In which phase are we currently in?
2. What do the volumes currently tell you?
If you liked this thread, here's the previous one I wrote.
That's a wrap!
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I appreciate it!
If you enjoyed this thread:
1. Follow us @Adityatodmal & @niki_poojary for more threads on Price action, Option Selling & Trading growth.
We've got you covered.
2. RT the first Tweet to share it with your audience.
I appreciate it!
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