Watch these insightful videos and Take your 1st step into Financial Market.
Key Learnings:Basics of Stock MarketFinancial Market
Even today, Dow Theory concepts are used extensively.
In this video, we will talk about Dow Theory, and the principals of this theory.
So, let us first discuss about, what is Dow Theory:
Charles H. Dow developed the Dow Theory in the late 19th century.
He was also the founder of the Dow-Jones financial news service, which is more popularly known as the Wall Street Journal.
William Hamilton later compiled the journals written by Charles H. Dow in the 1920s.
Even after 100 years, the Dow Theory is still considered as an integral part of technical analysis.
Now let us discuss the principals of Dow Theory.
These principals of Dow Theory are also known as tenets. There are six tenets which are considered to be the background of Dow Theory.
First is, the stock market discounts all information.
The first principal of the Dow Theory states that all the fears and expectations of the stock market participants, as well as the news in the stock market, whether past, current or future, are already discounted in the stock prices, except for the information like natural calamities like tsunami, earthquake etc.
Next is, the market has majorly three trends.
The prices in the stock market move mainly in three trends:
First is Primary Trend.
The primary trend is referred to as the trader’s best friend. If the primary trend is moving in the upward direction, then it is considered to be an uptrend, and if it is moving downward, then it is considered to be a downtrend. Traders should trade in the direction of the ongoing trend to minimize their losses.
Next is the Secondary Trend.
When there is a pullback in the primary trend, either in the upward direction or the downward direction, it is known as the secondary trend.
Last is the Minor Trend.
The minor trend is the corrective move within the secondary trend, and it moves against the direction of the secondary trend.
The next tenet is that the market has three different phases.
According to the Dow Theory, the primary trend moves in three phases:
First is Accumulation, which is the phase of buying undervalued stocks.
Next is Participation. It is the longest phase with large price movements in the stocks. In this phase, traders tend to buy more with confirmation of the ongoing trend.
The last phase is Distribution. This is the phase where the traders start selling their stocks in the hope that the market will start declining.
The next tenet is that Indexes must confirm with each other.
The ongoing trend is confirmed only when the different indexes like Nifty large-cap, Nifty mid-cap, and Nifty small-cap confirm each other.
Next, the volume must confirm the trend.
There should be an increase in the volume when the prices are moving in the upward or downward trend, the ongoing trend confirmed only then.
Lastly, until there are clear signs of reversals, the trend should continue:
One should keep trading in the ongoing trend, unless there are clear signals of reversals given by technical tools and indicators.
The main goal of Dow Theory is to identify the trends in order to catch the big price movements which are taking place in the stock market. The Theory helps investors to develop better trading strategies for maximizing their profits.
What does a Balance Sheet Tell You
P&L vs Balance Sheet
Difference Between PL Statement and Balance Sheet
Balance Sheet Reading
How to Efficiently Read a Balance Sheet
Cash Flow Statement
What is Cash Flow Statement
Understand Annual Report
How to Efficiently Read an Annual Report
Principles of Technical Analysis
Guiding Principles to Keep in Mind While doing Technical Analysis
What is the Dow Theory
What is Option Greek
Invest in Commodities
Using Options to Invest in Commodities