Loding Loading ...
X
Century Financial Consultancy LLC ("Century") does not offer investment advisory or portfolio management services nor guarantees investment returns. We do not accept or make payments in cryptocurrency or digital currency. Our official website is www.century.ae. Beware of fraudulent companies or websites posing as Century. We are not responsible for any losses from using fake websites or entities. Trading in financial markets involves a significant risk of loss which can exceed deposits and may not be suitable for all investors. Before you start, please ensure you fully understand the risks involved.

Dow Theory - Explained

The Dow Theory, the financial market theory developed by Charles H. Dow, is based on six fundamental principles that were a precursor to modern technical analysis.

Charles Dow believes that the stock market as a whole is a reliable measure of global economic conditions and that analyzing global markets makes it possible to accurately assess these conditions and predict the direction of major market trends and individual expectations. I believed that I could identify a direction for stock.

Charles Dow built on his theory the Dow Jones Industrial Index and the Dow Jones Rail Index (now known as the Transportation Index), originally developed for The Wall Street Journal. ) was created. Charles Dow created these indices because he believed they accurately reflected the economic and financial condition of companies in two major sectors of the economy: manufacturing and railroads (transportation).

Dow Theory Explained

The Dow Theory relies on analyzing the maximum and minimum market movements to make accurate predictions about market direction. According to Dow Theory, the meaning of these ups and downs is in relation to previous fluctuations. This method teaches investors to read trading charts and better understand what is happening to an asset at a particular point in time. This simple analysis allows even the most inexperienced person to see the context in which financial instruments evolve.

In addition, Charles Dow argued that the price of an asset and the resulting trading movement on his charts already contained all the information and forecasts available to make an accurate forecast. The traders and technicals of his analysts endorsed the common beliefs.

Dow Theory Trading Strategy

Most trading strategies in use today rely on a key concept called "trend". This was a novel idea by Charles H. Dow when he published his writings in the late nineteenth century. More than a century later, the Dow Jones Industrial Average market index, created by an American journalist to explain his theory, is probably the most watched index today. Charles H. Here are Dow's writings, what they mean, and the six core principles that underpin the Dow Theory.

1: The Market Discounts Everything

In other words, stock and index prices reflect all the information available, only the information that is not obvious. This is known as the efficient market hypothesis (EMH).

2: A market with three trends

The Dow Theory emphasizes that the primary trend usually lasts more than a year. They determine whether the market is bullish (up) or bearish (down). A secondary trend is a correction movement within the primary trend. These typically last 3 weeks to 3 months, leading to corrections (stock prices falling) in bull markets and rebounds (stock prices rising) in bear markets. Finally, there are small trends that last only a few days and are mostly "market noise", i.e. unpredictable short-term fluctuations in stock prices.

3: Primary trend remains valid until a clear reversal occurs

This is one of the most controversial elements of the Dow Theory. In fact, a primary trend reversal is often confused with the emergence of a secondary trend. So caution is advised, as Dow Theory makes it difficult to distinguish between the two until an event has occurred.

4: Three phases of the primary trends

During the first stage of the primary trend, investors will benefit from either an accumulation stage (before the bull market) or a distribution stage (before the bear market). Traders then move to the second general participation phase, where the maximum price movement occurs. Finally, the market goes through its third surplus phase. It is characterized by periods of euphoria (end of the bull market) or panic/despair (end of the bear market).

5: Volume should confirm the primary trends

Trends should be supported by volume. In an uptrend, the volume should increase when the price rises and decrease when the price falls, and in a downtrend, the volume should increase when the price falls and decrease when the price rises.

6. Major trends should be confirmed in all market indicators

This final tenet that two opposing primary trends cannot coexist in two different market indices was arguably the most important one for Charles H. Dow. In other words, a major trend in one market index should always be confirmed by a similar trend in another and vice versa. In response to this last tenet, Charles H. Dow did not stop at creating the Dow Jones Industrial Average. He also contributed to the development of another market index, the Dow Jones Transportation Average.

Does the Dow Theory Work?

Although much has changed in the last 100 years, the Dow Theory and its six principles are still applicable today and are considered a valid trading strategy by many traders. Much of what we currently know about technical analysis is rooted in Dow Theory. For this reason, every financial person using technical analysis should be familiar with the six basic principles of the Dow Theory.

Source: CMC Markets UK

Disclaimer: Century Financial Consultancy LLC (“CFC”) is Limited Liability Company incorporated under the Laws of UAE and is duly licensed and regulated by the Emirates Securities and Commodities Authority of UAE (SCA). This document is a marketing material and is for informational purposes only and must not be construed to be an advice to invest or otherwise in any investment or financial product. CFC does not guarantee as to adequacy, accuracy, completeness or reliability of any information or data contained herein and under no circumstances whatsoever none of such information or data be construed as an advice or trading strategy or recommendation to deal (Buy/Sell) in any investment or financial product. CFC is not responsible or liable for any result, gain or loss, based on this information, in whole or in part.

PLEASE READ THE FOLLOWING TERMS AND CONDITIONS OF ACCESS FOR THE PUBLICATION BEFORE THE USE THEREOF.

By use of the publication and continuing to access the publication, you accept these terms and conditions and undertake to be bound by the acceptance. CFC reserves the right to amend, remove, or add to the publication and Disclaimer at any time without any prior notice to you. Such modifications shall be effective immediately. Accordingly, please continue to review this Disclaimer whenever accessing, or using the publication. Your access of, and use of the publication, after modifications to the Disclaimer will constitute your acceptance of the terms and conditions of use of the publication, as modified. If, at any time, you do not wish to accept the content of this Disclaimer, you may not access, or use the publication. Any terms and conditions proposed by you which are in addition to or which conflict with this Disclaimer are expressly rejected by CFC and shall be of no force or effect.

No information as given herein by CFC in this publication should be construed as an offer, recommendation or solicitation to purchase or dispose of any securities/financial instruments/products or to enter in any transaction or adopt any hedging, trading or investment strategy. Neither this publication nor anything contained herein shall form the basis of any contract or commitment whatsoever. Distribution of this publication does not oblige CFC to enter into any transaction.

The content of this publication should not be considered legal, regulatory, credit, tax or accounting advice. Anyone proposing to rely on or use the information contained in the publication should independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professionals or experts regarding information contained in this publication. CFC cannot be held responsible for the impact of any transactional costs or any taxes as may be applicable on transactions.

Information contained herein is based on various sources, including but not limited to public information, annual reports and statistical data that CFC considers reliable. However, CFC makes no representation or warranty as to the accuracy or completeness of any report or statistical data made in or in connection with this publication and accepts no responsibility whatsoever for any loss or damage caused by any act or omission taken as a result of the information contained in this publication. The articles does not take into account the investment objectives, financial situations and specific needs of recipients. The recipient of this publication must make its own independent decisions regarding whether this communication and any securities or financial instruments mentioned herein, is appropriate in the light of its existing portfolio holdings and/or investment needs.

This document is a marketing material and has been prepared by individual(s), marketing and/or research personnel of CFC. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is purely a marketing communication. In this publication, any opinions, news, research, analysis, prices, or other information constitute is a general market commentary, and do not constitute the opinion or advice of CFC or any form of personal or investment advice. CFC neither endorses nor guarantees offerings of third party, nor is CFC responsible for the content, veracity or opinions of third-party speakers, presenters, participants or providers. CFC will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

Charts, graphs and related data or information provided in this publication are intended to serve for illustrative purposes only. The information contained in this publication is prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors relevant to their determination. All statements as to future matters are not guaranteed to be accurate. CFC expressly disclaims any obligation to update or revise any forward-looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.

Staff members/employees of CFC may provide/present oral or written market commentary or analysis to you that reflect opinions that are contrary to the opinions expressed in this research and may contain insights and reports that are inconsistent with the views expressed in this publication. Neither CFC nor any of its affiliates, group companies, directors, employees, agents or representatives assume any liability nor shall they be made liable for any damages whether direct, indirect, special or consequential including loss of revenue or profits that may arise from or in connection with the use of the information provided in this publication.

Information or data provided by means in this publication may have many inherent limitations, like module errors or lack accuracy in its historical data. Data included in the publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, credit risk etc.

The use of our information, products and services should be on your own due diligence and you agree that CFC is not liable for any failure to achieve desired return on investment that is in any manner related to availing of services or products of CFC and use of our information, products and services. You acknowledge and agree that past investment performance is not indicative of the future performance results of any investment and that the information contained herein is not to be used as an indication for the future performance of any investment activity.

This publication is being furnished to you solely for your information and neither it nor any part of it may be used, forwarded, disclosed, distributed or delivered to anyone else. You may not copy, reproduce, display, modify or create derivative works from any data or information contained in this publication.

Services offered by CFC include products that are traded on margin and can result in losses that exceed deposits. Before deciding to trade on margin products, you should consider your investment objectives, risk tolerance and your level of experience on these products. Trading with leverage carries significant risk of losses and as such margin products are not suitable for every investor and you should ensure that you understand the risks involved and should seek independent advice from professionals or experts if necessary.