Dow Jones Theory
The first mention of the possibility of forecasting future price movements based on the results of the previous trading emerged in the late XIX century in the Wall Street Journal. This article was already notorious Charles Dow - the creator of the popular current of the Dow - Jones. The theory, created by Dow, survives to this day and is called: "Doe". The method was developed and improved by up to 70 years of XX century. With the advent of computers has become easier not only considered, but calculations and display in graphical form.
Proistekaya directly and indirectly from the Dow theory, technical analysis has incorporated the principles and concepts of this theory as "directed nature of price movements", "prices into account all known information", "confirmation" and "difference", "The volume as a mirror of price changes 'and' support / resistance. "And a widely spread industrial index DouDzhonsa - is a direct descendant of the Dow Theory.
Price Forecasting in the technical analysis based on the previous auction. From these indicators of trading the greatest interest are the two.
The first - the price of assets. Prices are understood, their values are easy to find the private trader. This makes the price of the most important indicator for the job.
The second - volume of trades, that is, the total number carried out during the time period of interest transactions, expressed in any currency. These values are harder to find, but possible.
On these pillars - the price, trading volume - based theory of technical analysis. Like any theory, it has its postulates. The three basic read as follows:
1. Movement in asset prices into account all factors. This means that the price reacts to all external factors, whether the statement of the American president, about the level of inflation in Mexico or a hurricane in California. According to Dow theory, any factor that may affect the supply or demand, always will be reflected in the index (the price). Of course, earthquakes and tsunamis are unpredictable, but they are instantly recorded and reflected in market price movements.
2. Prices move directionally. This means that price movements are not chaotic, but follow a certain direction. The direction is called a trend. Trends come in three varieties: bull (up), bear (down) and lateral (or downward, or appreciation).
3. History repeats itself. "The key to understanding the future lies in the study of the past." The fact that a certain configuration on the graphs of prices tend to appear consistently and repeatedly, and in different markets and different time scales, is a consequence of certain behavior patterns characteristic of the human psyche. There are three different approaches to the analysis of graphs. The first - a superficial, subjective. It is based mainly on intuition. This is the usual "spear." It does not require any rigorous analysis, no justification, therefore, the majority of traders working on this very simple level. Unfortunately, for the sake of simplicity and convenience they sacrifice logic. The second approach involves the creation of market indicators that help identify oversold and overbought market. Although many traders, at least partially use this type of analysis, they are usually limited to the most well-known indicators and follow generally accepted ways of interpreting them. In such work is not creative. These traders do not try to create your own indicators or improve existing ones. In addition, they are often associated with fancy LEDs exaggerated expectations and do not notice their shortcomings. The most effective and valuable is the third approach - the development of trading systems, capable of generating signals for buying and selling. However, not all analysts have a sufficient level of education, experience and desire to constantly hone their skills.
Initially, the principles set out in Charles Dow, were used to analyze them created by the U.S. indices, industrial and railway. But with the same result, most analytical findings can be applied and the Dow in the financial markets.
The main provisions of the Dow Theory:
1. The indices take into account everything. According to Dow theory, any factor that could somehow affect the supply or demand, always will be reflected in the index. Of course, these events are not predictable, however, they are immediately taken into account by the market and affect the dynamics of the indices.
2. In the market there are three types of trends. With the rising trend each subsequent peak and decline in each successive higher than the previous. If the downward trend each subsequent peak and decline is lower than the previous one. With each successive horizontal trends peak and decline is located approximately at the same level as the previous ones.
Dow also pointed out three categories of trends: primary, secondary and minor. The greatest value he attached to it the primary or major trend that has lasted more than a year, sometimes for years. The secondary or intermediate trend correction is relative to the main trends and usually lasts from three weeks to three months. These interim amendments ranged from one to two-thirds (often half) of the distance traveled by the prices during the previous (major) trend. Small or short-term trends do not last more than three weeks and is a short-term fluctuations in the intermediate trend.
3. The main trend has three phases. Phase one, or the accumulation phase, when the most forward-thinking and informed investors start buying, because All adverse economic information has already been taken into account by the market. The second phase begins when the game includes those who use the techniques of following trends. Economic data is increasingly optimistic. The trend is in its third or final phase, when the action takes the general public and the market begins boom, fueled by the media. Economic forecasts are optimistic. Increases the amount of speculation. Here there are informed investors who are "built up" during the decline of the previous trend, when no one wanted to "accumulate," eventually "spread." Trends come to an end.
4. Indices must confirm each other. Here Dow was referring to industrial and railway indexes. He believed that any important signal to increase or decrease in rate in the market must pass in the values of both indexes.
5. The volume of trade must confirm a trend. Volume should increase towards the main trend.
6. The trend is valid as long as not filed an explicit signal that it has changed.
The first mention of the possibility of forecasting future price movements based on the results of the previous trading emerged in the late XIX century in the Wall Street Journal. This article was already notorious Charles Dow - the creator of the popular current of the Dow - Jones. The theory, created by Dow, survives to this day and is called: "Doe". The method was developed and improved by up to 70 years of XX century. With the advent of computers has become easier not only considered, but calculations and display in graphical form.
Proistekaya directly and indirectly from the Dow theory, technical analysis has incorporated the principles and concepts of this theory as "directed nature of price movements", "prices into account all known information", "confirmation" and "difference", "The volume as a mirror of price changes 'and' support / resistance. "And a widely spread industrial index DouDzhonsa - is a direct descendant of the Dow Theory.
Price Forecasting in the technical analysis based on the previous auction. From these indicators of trading the greatest interest are the two.
The first - the price of assets. Prices are understood, their values are easy to find the private trader. This makes the price of the most important indicator for the job.
The second - volume of trades, that is, the total number carried out during the time period of interest transactions, expressed in any currency. These values are harder to find, but possible.
On these pillars - the price, trading volume - based theory of technical analysis. Like any theory, it has its postulates. The three basic read as follows:
1. Movement in asset prices into account all factors. This means that the price reacts to all external factors, whether the statement of the American president, about the level of inflation in Mexico or a hurricane in California. According to Dow theory, any factor that may affect the supply or demand, always will be reflected in the index (the price). Of course, earthquakes and tsunamis are unpredictable, but they are instantly recorded and reflected in market price movements.
2. Prices move directionally. This means that price movements are not chaotic, but follow a certain direction. The direction is called a trend. Trends come in three varieties: bull (up), bear (down) and lateral (or downward, or appreciation).
3. History repeats itself. "The key to understanding the future lies in the study of the past." The fact that a certain configuration on the graphs of prices tend to appear consistently and repeatedly, and in different markets and different time scales, is a consequence of certain behavior patterns characteristic of the human psyche. There are three different approaches to the analysis of graphs. The first - a superficial, subjective. It is based mainly on intuition. This is the usual "spear." It does not require any rigorous analysis, no justification, therefore, the majority of traders working on this very simple level. Unfortunately, for the sake of simplicity and convenience they sacrifice logic. The second approach involves the creation of market indicators that help identify oversold and overbought market. Although many traders, at least partially use this type of analysis, they are usually limited to the most well-known indicators and follow generally accepted ways of interpreting them. In such work is not creative. These traders do not try to create your own indicators or improve existing ones. In addition, they are often associated with fancy LEDs exaggerated expectations and do not notice their shortcomings. The most effective and valuable is the third approach - the development of trading systems, capable of generating signals for buying and selling. However, not all analysts have a sufficient level of education, experience and desire to constantly hone their skills.
Initially, the principles set out in Charles Dow, were used to analyze them created by the U.S. indices, industrial and railway. But with the same result, most analytical findings can be applied and the Dow in the financial markets.
The main provisions of the Dow Theory:
1. The indices take into account everything. According to Dow theory, any factor that could somehow affect the supply or demand, always will be reflected in the index. Of course, these events are not predictable, however, they are immediately taken into account by the market and affect the dynamics of the indices.
2. In the market there are three types of trends. With the rising trend each subsequent peak and decline in each successive higher than the previous. If the downward trend each subsequent peak and decline is lower than the previous one. With each successive horizontal trends peak and decline is located approximately at the same level as the previous ones.
Dow also pointed out three categories of trends: primary, secondary and minor. The greatest value he attached to it the primary or major trend that has lasted more than a year, sometimes for years. The secondary or intermediate trend correction is relative to the main trends and usually lasts from three weeks to three months. These interim amendments ranged from one to two-thirds (often half) of the distance traveled by the prices during the previous (major) trend. Small or short-term trends do not last more than three weeks and is a short-term fluctuations in the intermediate trend.
3. The main trend has three phases. Phase one, or the accumulation phase, when the most forward-thinking and informed investors start buying, because All adverse economic information has already been taken into account by the market. The second phase begins when the game includes those who use the techniques of following trends. Economic data is increasingly optimistic. The trend is in its third or final phase, when the action takes the general public and the market begins boom, fueled by the media. Economic forecasts are optimistic. Increases the amount of speculation. Here there are informed investors who are "built up" during the decline of the previous trend, when no one wanted to "accumulate," eventually "spread." Trends come to an end.
4. Indices must confirm each other. Here Dow was referring to industrial and railway indexes. He believed that any important signal to increase or decrease in rate in the market must pass in the values of both indexes.
5. The volume of trade must confirm a trend. Volume should increase towards the main trend.
6. The trend is valid as long as not filed an explicit signal that it has changed.
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