DreamAnalysis | Technical Analysis Dow Theory EP03
2024-09-29

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

👋 Recap of the Previous Session: In the previous session, we covered the middle 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: Let’s dive into Principles 5 & 6 of Dow Theory and explore their significance in market analysis.

🎨 What is Technical Analysis? Technical analysis is more of an art than a science. Just like art, there is no definitive right or wrong. Instead, we create rules based on experience to navigate the lawless market. Patterns in life can reflect in the markets, but we must always approach it with an artistic perspective.

📑 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 - Trends Continue Until a Reversal is Confirmed
5 - The Averages Must Confirm Each Other
6 - Volume Confirms the Trend

📊 Principle 5: Volume Confirms the Trend
Typically, when the price moves in the direction of the main trend, the trading volume increases. The same applies to bearish trends, where declining prices are supported by increasing sell volume. Low volume suggests weakening momentum. For example, in a bull market, buying volume should rise with the price, and during corrections, volume should remain steady.

📉 However, if volume increases during a correction, it may signal that more investors are turning bearish on the asset. Therefore, volume acts as a crucial indicator of the strength or weakness of a trend.

📉 Principle 6: Trends Continue Until a Reversal is Confirmed
🔄 Dow Theory emphasizes that trends continue until a clear reversal signal is observed. This means that despite short-term fluctuations or corrections, the primary market trend remains intact until there is unmistakable evidence of a change in direction.

🚩 It’s important to distinguish between temporary corrections and true trend reversals. Misinterpreting short-term declines in a bull market or temporary rallies in a bear market can lead to confusion and poor decision-making.

🎯 Conclusion: This concludes our breakdown of the 6 principles of Dow Theory. In the next session, we will review and summarize the entire Dow Theory to solidify your understanding.

📝 Important Note: These principles were developed over 100 years ago, and with today’s diverse markets, there are many different perspectives on their application.

⚠️ Please remember that these lessons represent our personal view of the market and are not financial advice. Always do your own research before making investment decisions.