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Published on: November 23, 2021 at
The Six Tenets of Dow Theory - Explained (SIMPLE)
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The Six Tenets of Dow Theory - Explained (SIMPLE)
Today, we discuss the Six Tenets of Dow Theory. 🚀 Join the VIP Membership Group (Discord) today! ► https://fiveorlessfinance.com/ 1. THE AVERAGES MUST DISCOUNT EVERYTHING Stock prices reflect both current + future expectations of general economic activity. Buying and selling will affect the averages. Even natural disasters, which obviously cannot be anticipated, are very quickly discounted into the averages. THE MARKET HAS THREE TRENDS Dow defined an uptrend = series of rising peaks and troughs Downtrend = series of successively lower peaks and troughs. He considers each trend to be made up of 3 parts: PRIMARY, SECONDARY and MINOR. Primary trend (tides) : longest of the trends = the overall, broad, long-term movement of security prices. Can last a long time, sometimes even years. Is called a BULL MARKET or a BEAR MARKET. Secondary (waves) : intermediate trend = CORRECTIVE REACTIONS to the primary trend. Down in a bull market vs Up in a bear market. They usually last 3 weeks to 3 months. Combats excessive speculation. Minor trend (ripples) : Short term (usually less than 4 weeks) → Can be misleading = ‘NOISE’ to the larger trend… In a BULL MARKET: ACCUMULATION PHASE: starts at the end of the last stage of the bear market. Here prices are depressed and economic news is negative. Farsighted and informed investors start picking up stock at cheap prices in anticipation of rosier times. (Contrarian buying) 2nd stage : improving economic conditions + improving corporate earnings. The media catches on + the public begins to buy 3rd stage : positive economic conditions + bullish stories and newscasts + a buying frenzy. Investors believe that the market is unstoppable, and bid up prices to high levels. Farsighted investors (so-called SMART MONEY) should start selling. In a BEAR MARKET: DISTRIBUTION PHASE: began at the end of the last stage of the bull market. SMART MONEY investors start selling. The 2nd stage : strong selling due to negative economic activity and deteriorating earnings. Volumes start to pick up as does the rate of selling. 3rd stage of bear market : negative news stories as fed on by the media. It is characterized by capitulation selling. This is where the farsighted investors see opportunity to buy cheap stock and late in the stage begin buying again, taking us out of the bear market and starting the process all over again. THE AVERAGES MUST CONFIRM EACH OTHER Confirmation = things moving together = Dow industrial goes higher leads dow transportation to go higher If the DOW industrial goes up, the DOW transportation should go up within 1-2months before the first average reverses its initial trend... Cuz economy follows DOW THEORY can only be confirmed if BOTH averages, the DJIA and the DJTA reach new highs or new lows. They do not have to do so simultaneously, but one signal should soon follow the other. In order for the INDUSTRIALS to be profitable, they need to get their products to market, i.e. they have to be shipped or transported to their respective destinations. To Dow, a bull market in industrials could not occur unless the railway average rallied as well. Only once this is done, is a healthy economy truly confirmed. VOLUME CONFIRMS THE TREND If stock goes up, then volume should go up (confirms the trend). Volume expands in the direction of the prevailing trend. Volume is like a participation rate/voting contest… the “true market view”. A trend in motion remains in motion until it gives signals of a reversal. 🔥 ....................... 📸 Check me out on Instagram & Twitter! https://www.instagram.com/elblancofinance/ https://twitter.com/5orlessfinance ⚔️ Managed to get you all a 30% discount on a professional crypto course! Use code: 5orlessBTC https://www.crypto-foundations.com/?ref=6 🔷 To buy & sell Bitcoin, I use Shakepay and BlockFi. ➔ Shakepay: https://shakepay.me/r/CVW9C8R ➔ BlockFi Interest Account: https://blockfi.com/?ref=501dfe31 ✅ Wealthsimple Trade account and get $10 for free when you deposit $100: https://my.wealthsimple.com/app/public/trade-referral-signup?code=IDN9IA ✅ QuesTrade margin account to buy OTC stocks and do pre/after market trading: QPass key: 386628227438240 ................................... DISCLAIMER - The content in these videos shall not be construed as financial advice. It is your responsibility to verify all information yourself. This is a Youtube video for entertainment purposes ONLY. Do not make investment decisions based on our videos. No copyright infringement is intended. Links included in this description might be affiliate links. If you purchase a product or service with the links that I provide I may receive a small commission. There is no additional charge to you! Thank you for supporting my channel so I can continue to provide you with free content each week! ............................ Only responsible for gains, not losses Let's get rich 🚀📈 Let's finagle this bagel 🥯
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