Dow theory
The father of this theory is Charles H. Dow
who said that the most of instruments are behaving in specific way. This theory
is based on
* the currencies and instruments have clearly based trend
* the instrument contains "trendmaking" factors based on supply and
demand
* when the trend has changed a specific formation is created and is always
repeated with the purpose to predict the trend
For supporting this theory he built
well known indexes :
1. Dow Jones
Industrial Average - based on 30 most important industiral companies
- called industrial index
2. Dow Jones Rail Average (DJRA) - based on 12
transport companies , today known as Dow Jones Transportation Average
According to Dow all these aspects
happened on market are reflected through these two indexes. For each index are
typical three trends :
* primary trend - it
is the most important because it contains all positive and negative moves. Each
of this movement has its specific length.
* secondary trend it shows us less important
movements , short term movements ( 3months - 1 year)
* tercial trend it show us very shor term
movements of the market during few days
Each trend contains these periods:
* cyclical period - it represents periodical /
cyclical movements of the market with specific time lenght.
* seasonal period - it represents periodical
changes of the market but only during specific period ( eg. summer , winter)
* random period - sometimes in doesnt contain
any of this period . The random period is buil up by cyclical and seasonal
period.
This is just a basic theory about dow
theory and also today we can find the people which dont like this theory.
The question is how to use this
theory. We will use the first period - cyclical
Let me show you how ....i will ask you have you ever try this ?
As you can see on the market we have some cycles ,...isnt it easy ? I have made just a symle example . But the same research could be done on lower TFs and also in uptrend ! ,... you get it ? The market behaves in some specific ways . I understand the market is changing each day , but this theory is here for many years.
Wish you many green pips.
T
