DreamAnalysis | Technical Analysis Dow Theory EP02
2024-09-23

📚 Welcome to the Educational Content Section of Our Channel: Technical Analysis Training

📚 Recap of the Previous Session:
In the previous session, we explained the first two principles of Dow Theory. Make sure to review and study them, and if you have any questions, feel free to reach out to us in the comments.


📖 Today’s Focus:
Principles 3 & 4 of Dow Theory
Now, let’s dive into Principles 3 and 4 of Dow Theory and explore them together.

🎨 What is Technical Analysis?
Let’s talk a bit about technical analysis and patterns in life. Technical analysis is not a science; rather, it is an art. Therefore, there is no right or wrong in art. Instead, we apply rules we have created through experience in this lawless market.

📑 Principles of Dow Theory :
1 - The Averages Discount Everything (Not applicable to crypto)
2 - The Market Has Three Trends
3 - Trends Have Three Phases
4 - Trend Continues Until a Reversal is Confirmed
5 - The Averages Must Confirm Each Other
6 - Volume Confirms the Trend

📊 Principle 3: Three Phases in Every Trend
According to Dow Theory, each major market trend is divided into three distinct phases:

1️⃣ Accumulation
In this phase, large and informed investors begin buying or selling assets at favorable prices. These groups consist of individuals and institutions with significant knowledge and financial resources, often acting contrary to the majority of the market. While most market participants may not yet notice price changes, these informed investors are positioning themselves to benefit from future market movements.

2️⃣ Public Participation
At this stage, most investors start recognizing the trend and begin participating in the market. The trend accelerates as public attention increases, and new capital flows in. This phase is typically characterized by a sharp rise in prices during a bull market or a sharp decline during a bear market.

3️⃣ Excess or Fear
In this phase, participants jump into trades out of fear of missing out on profits or due to panic over further losses. This phase often signals the nearing end of the major trend and is usually followed by a reversal or change in trend direction.

💡 Principle 4: Different Indexes Must Confirm Each Other

This principle states that the overall market trend must be confirmed by various indexes. It means that a bullish or bearish market trend can only be considered valid if other key indexes are moving in the same direction.

🔍 Example: To confirm a bullish market in a country like India, all major indexes, such as Nifty, Sensex, Nifty Midcap, and Nifty Smallcap, should be moving upward.

📝 Important Note: These principles were developed over a century ago, and it is natural that with today's diverse financial markets, there are varying views on their application.

⚠️ Please remember that these lessons represent our personal view of the market and should not be considered financial advice for investment.