What is the Dow theory?

Dow theory was created by Charles H Dow and they are the person introduced indices to the stock market for first time.

What is the Dow theory?

Dow theory is financial theory that says the market is in an upward trend if one of its averages advances above a previous important high and is accompanied or followed by a similar advance in the other average.

Not get it ?? Don't worry example given below will make this easy.
For example-

If NIFTY makes new high than Sensex is expected to follow nifty

How this theory works?

1. The Market Discount Everything:

In simple language whether it is Risk factors or whether it is Opportunity in market discount everything with data or information market have.

(In fact price tells everything) if price increase there are hopes for opportunities in market and prices decrease there are in fear of risks.

2. Three primary market trends:

For long term(about 10 years) there are three trends
1. Up trend
2. Down trend
3. Sideways trend


3. Primary trend has a three phase

A-For a bull run there are three phase
• Accumulation phase
• Big rise (when public enters)
• Excess phase (when everybody enter blindly for ex. Rpower IPO)

B-For a bear run there are three phase
• Distribution phase
• Big fall (Public participation)
• Panic phase ( generally called blood on street)

4. Indices must confirm trend

For simple example if NIFTY perform will then SENSEX is expected to follow trend of NIFTY

5. Volume must confirm the trend

Volume should increase if the price is moving in the direction of the primary trend and decrease if it is moving against it. Low volume signals a weakness in the trend.

Comments

Post a Comment

Popular posts from this blog

Explain technical analysis

Image
Technical analysis is a method used to evaluate stocks or other financial instruments by analyzing statistics generated by market activity, including past prices and volume. The basic premise of technical analysis is that market trends, patterns, and behaviors can be identified and used to predict future price movements. Technicians (as those who use technical analysis are often referred to) typically use charts to analyze price movements and identify trends.   They also rely on various technical indicators, such as  1-Moving Averages 2-Relative Strength Index (RSI) 3-Bollinger Bands, and  4-MACD, to provide additional insight into the market. (We will cover this topic in upcoming blogs in detail) One of the key advantages of technical analysis is the ability to identify trends and patterns that can be difficult to see in raw data.  For example, a technician might identify a support or resistance level, which is a price level at which a stock has historically had difficulty moving past
Read more

Business model of Tesla

Image
1. Key Partners: Suppliers, government agencies, battery manufacturers, research and development partners. 2. Key Activities: Producing electric vehicles, designing and manufacturing battery technology, developing energy storage solutions, personalizing vehicles for customers, operating an online sales platform. 3. Key Resources: Skilled labor force, advanced manufacturing facilities, patented technology, strong brand reputation, a loyal customer base. 4. Value Proposition: Offering sustainable and efficient transportation solutions, providing electric vehicles that offer high performance and range, offering the latest in technology with automated driving features, creating an emotional connection with customers who share the company's values. 5. Customer Segments: Environmentally conscious customers, tech-savvy individuals, high-end car buyers, consumers in urban environments. 6. Customer Relationships: Offering personalized service and support, providing online tools for customer
Read more