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CHAPTER 9: TECHNICAL ANALYSIS (9.1 THE DOW THEORY :green_cross: A…

There are several conclusions that can be made on the price behaviour of stocks from the writings of Dow on stock market :

The Averages Discount Everything.

     Dow believes that every possible factor affecting supply and demand must be reflected in the market averages

The Market Has Three Trends.
Dow divided trends into three categories :.

   :check: A primary or major trends is the main concern, which usually lasts for more than a year and possibly several years. :check: The secondary or intermediate trends represent correction in the primary trends and usually last for three weeks to three months. :check: A minor or near-term trend represent shorter term fluctuation in the intermediate trends usually lasts than three weeks.

The Averages Must Confirm Each Other.

     :pencil2: Dow believes that the bull or bear market signal could take place only if both averages give the same signal. :pencil2: The signals do not have to occur simultaneosly, but the closer together the better.

Volume Must Confirm The Trend.

     :fire: Volume is recognized as a secondary but important factor in confirming price signals.:fire: In major uptrend, volume would then increase as prices move higher, and diminish as prices fall.:fire: In a downtrend, volume should increase as prices drop and diminishbas they rally

Major Trends Have Three Phases. Usually take place in three distinct phases

     :star: The accumulation phase represent informed buying by the most astute investors.:star: The public participation (advancing) phase occurs when prices begin to advance rapidly and business news improves. :star: The distribution phase takes place when newspapers begin to print increasingly bullish stories; when economic news is better than ever; and when speculative volume and public participation increase.

A Trend Assumed To Be In Effect Until It Gives Definite Signals That It Has Reverses.

     :check: This tenet forms much of the foundation of modern trend-following approaches. :check:Number of technical tools are avaible to traders to assist in the difficult task of spotting reversal signals, include the study of support and resistance levels, price patterns, trend lines and moving averages.

- - - - Fundamental analysis is also claimed to be of little use in finding investment opportunities
- - - - All information in the market is accounted for in the stock's price and neither technical nor fundamental analysis can provide investors with an edge
- - - - Use top-down or bottom-up approach
      - Useful in deciding what shares to buy or sell.
      - How investors see traders
      - Believe that it is important to determine the intrinsic value of shares
      - Make money out of your stack in companies and how their products/service sell
      - Long term investing with mutual fund managers
      - The power of compounding is your friend
    - - Useful in deciding when to buy or sell
      - How traders see investors
      - Rely mostly on charts and don't put too much emphasis on fundamentals
      - Make money out of the movement of the market with each movement often measured in pennies
      - Day trading
      - Stock market volatility is your friend
      - Use charts to analyse the market