Dow Theory simple introduction
For those of you not familiar with Dow Theory. Here's a simple introduction. Nothing technical just a "welcome to" type of educational post.
Short History
Dow Has 6 Rules - these are known as the 6 Tenets
Dow is mostly known (most obvious - the Dow Jones Industrial Average)
Other tools and techniques can fit into the Dow Theory, such as Elliott and Wyckoff.
Wyckoff "Buy me now" moves.
As for Wyckoff - volume is and was a factor for the Dow Theory; Volume should increase in the direction of the trend in order to give confirmation. It is only a secondary indication but Dow realized that if volume didn't increase in the direction of the trend, this is a red flag. This means that the trend may not be valid.
As basic wave principles apply - Dow simplified the inner workings of the market with the 6 tenets.
He also came out with some brilliant quotes such as "Money is made by conservative trading rather than by the effort to get large profits by taking large risks."
And
“A person watching the tide coming in and who wishes to know the exact spot which marks the high tide, sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position where the waves do not come up to it, and finally recede enough to show that the tide has turned. This method holds good in watching and determining the flood tide of the stock market.”
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Dow theory trading strategy
Most trading strategies used today hinge on one key concept, the "trend". This was a novel idea when Charles H. Dow published his writings at the end of the 19th century. Dow theory says that the market is in an upward trend if one of its averages goes above a previous important high and is accompanied or followed by a similar movement in the other average. Therefore, a Dow theory trading strategy is based on a trend-following strategy, and can either be bullish or bearish.
So although the times have changed, human nature and the basic principles have not. Some of the theory can easily be applied to instruments such as commodities, Forex and crypto.
As I said, this is not a lesson on the trading with, it was more an intro to. Worth some additional research, there are some very interesting books on the subject.
Wyckoff basics part 2 )click the image link)
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Short History
Dow Has 6 Rules - these are known as the 6 Tenets
Dow is mostly known (most obvious - the Dow Jones Industrial Average)
Other tools and techniques can fit into the Dow Theory, such as Elliott and Wyckoff.
Wyckoff "Buy me now" moves.
As for Wyckoff - volume is and was a factor for the Dow Theory; Volume should increase in the direction of the trend in order to give confirmation. It is only a secondary indication but Dow realized that if volume didn't increase in the direction of the trend, this is a red flag. This means that the trend may not be valid.
As basic wave principles apply - Dow simplified the inner workings of the market with the 6 tenets.
He also came out with some brilliant quotes such as "Money is made by conservative trading rather than by the effort to get large profits by taking large risks."
And
“A person watching the tide coming in and who wishes to know the exact spot which marks the high tide, sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position where the waves do not come up to it, and finally recede enough to show that the tide has turned. This method holds good in watching and determining the flood tide of the stock market.”
======================================================================================================================================
Dow theory trading strategy
Most trading strategies used today hinge on one key concept, the "trend". This was a novel idea when Charles H. Dow published his writings at the end of the 19th century. Dow theory says that the market is in an upward trend if one of its averages goes above a previous important high and is accompanied or followed by a similar movement in the other average. Therefore, a Dow theory trading strategy is based on a trend-following strategy, and can either be bullish or bearish.
So although the times have changed, human nature and the basic principles have not. Some of the theory can easily be applied to instruments such as commodities, Forex and crypto.
As I said, this is not a lesson on the trading with, it was more an intro to. Worth some additional research, there are some very interesting books on the subject.
Wyckoff basics part 2 )click the image link)
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
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