#B2B| Ep 3| Dow Theory & its application in todays markets.
19.2 هزار بار بازدید -
3 سال پیش
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Dow Theory has been around for almost 100 years, yet even in today's volatile and technology-driven markets, the basic components of Dow Theory still remain valid. Developed by Charles Dow, refined by William Hamilton and articulated by Robert Rhea, Dow Theory addresses not only technical analysis and price action, but also market philosophy. Many of the ideas and comments put forth by Dow and Hamilton became axioms of Wall Street. While there are those who may think that the market is different now, a read through Rhea's book, The Dow Theory, will attest that the stock market behaves the same today as it did almost 100 years ago.
At a high level, Dow Theory describes market trends and how they typically behave. At a more granular level, it provides signals that can be used to identify and subsequently trade with the primary market trend. The theory centers around identifying the trend for the Dow Jones Rail (now Transportation) Average and the Dow Jones Industrial Average, and using volume to confirm those trends. If both Dow Jones averages are trending in the same direction, then the entire market can be said to be trending in that direction as well. Investors can use these signals to identify the primary market trend, and then trade with that trend.
Background
Charles Dow developed Dow Theory from his analysis of market price action in the late 19th century. Until his death in 1902, Dow was part-owner as well as editor of The Wall Street Journal. Although he never wrote a book on these theories, he did write several editorials that reflected his views on speculation and the role of the rail and industrial averages.
Even though Charles Dow is credited with developing Dow Theory, it was S.A. Nelson and William Hamilton who later refined the theory into what it is today. Nelson wrote The ABC of Stock Speculation and was the first to actually use the term “Dow Theory.” Hamilton further refined the theory through a series of articles in The Wall Street Journal from 1902 to 1929. Hamilton also wrote The Stock Market Barometer in 1922, which sought to explain the theory in detail.
In 1932, Robert Rhea further refined the analysis of Dow and Hamilton in his book, The Dow Theory. Rhea read, studied and deciphered some 252 editorials through which Dow (1900-1902) and Hamilton (1902-1929) conveyed their thoughts on the market. In his work, Rhea also referred to Hamilton's The Stock Market Barometer.
Our presentation of Dow Theory in this article is based on Rhea's book, The Dow Theory, which organized Dow's and Hamilton's writings into a set of assumptions and theorems. Where possible, we have also attempted to link some of the realities of today's market with Dow Theory as explained by Dow, Hamilton and Rhea.
AssumptionsBefore one can begin to accept Dow Theory, there are a number of assumptions that must be accepted. Rhea stated that for the successful application of Dow Theory, these assumptions must be accepted without reservation.
Manipulation
The first assumption is that the manipulation of the primary trend is not possible. When large amounts of money are at stake, the temptation to manipulate is bound to be present. Hamilton did not argue against the possibility that speculators, specialists or anyone else involved in the markets could manipulate the prices. He qualified his assumption by asserting that it was not possible to manipulate the primary trend. Intraday, day-to-day and possibly even secondary movements could be prone to manipulation. These short movements, from a few hours to a few weeks, could be subject to manipulation by large institutions, speculators, breaking news or rumors. Today, Hamilton would likely add message boards and day-traders to this list.
Hamilton went on to say that individual shares could be manipulated. Examples of manipulation usually end the same way: the security runs up and then falls back and continues the primary trend. Examples include:
PairGain Technology rose sharply due to a hoax posted on a fake Bloomberg site. However, once the hoax was revealed, the stock immediately fell back and returned to its primary trend.
Books-A-Million rose from 3 to 47 after announcing an improved web site. Three weeks later, the stock settled around 10 and drifted lower from there.
In 1979/80, there was an attempt to manipulate the price of silver by the Hunt brothers. Silver skyrocketed to over 50$ per ounce, only to come back down to earth and resume its long bear market after the plot to corner the market was unveiled.
While these shares were manipulated over the short term.
#bharatjhunjhunwala
#dowtheory
#technicalanalysis
#stockmarkethindi
#sharetrading
#sharetips
#sharemarket
MASTER TRADER PROGRAM: https://prorsi.com/programs-and-offers/
Dow Theory has been around for almost 100 years, yet even in today's volatile and technology-driven markets, the basic components of Dow Theory still remain valid. Developed by Charles Dow, refined by William Hamilton and articulated by Robert Rhea, Dow Theory addresses not only technical analysis and price action, but also market philosophy. Many of the ideas and comments put forth by Dow and Hamilton became axioms of Wall Street. While there are those who may think that the market is different now, a read through Rhea's book, The Dow Theory, will attest that the stock market behaves the same today as it did almost 100 years ago.
At a high level, Dow Theory describes market trends and how they typically behave. At a more granular level, it provides signals that can be used to identify and subsequently trade with the primary market trend. The theory centers around identifying the trend for the Dow Jones Rail (now Transportation) Average and the Dow Jones Industrial Average, and using volume to confirm those trends. If both Dow Jones averages are trending in the same direction, then the entire market can be said to be trending in that direction as well. Investors can use these signals to identify the primary market trend, and then trade with that trend.
Background
Charles Dow developed Dow Theory from his analysis of market price action in the late 19th century. Until his death in 1902, Dow was part-owner as well as editor of The Wall Street Journal. Although he never wrote a book on these theories, he did write several editorials that reflected his views on speculation and the role of the rail and industrial averages.
Even though Charles Dow is credited with developing Dow Theory, it was S.A. Nelson and William Hamilton who later refined the theory into what it is today. Nelson wrote The ABC of Stock Speculation and was the first to actually use the term “Dow Theory.” Hamilton further refined the theory through a series of articles in The Wall Street Journal from 1902 to 1929. Hamilton also wrote The Stock Market Barometer in 1922, which sought to explain the theory in detail.
In 1932, Robert Rhea further refined the analysis of Dow and Hamilton in his book, The Dow Theory. Rhea read, studied and deciphered some 252 editorials through which Dow (1900-1902) and Hamilton (1902-1929) conveyed their thoughts on the market. In his work, Rhea also referred to Hamilton's The Stock Market Barometer.
Our presentation of Dow Theory in this article is based on Rhea's book, The Dow Theory, which organized Dow's and Hamilton's writings into a set of assumptions and theorems. Where possible, we have also attempted to link some of the realities of today's market with Dow Theory as explained by Dow, Hamilton and Rhea.
AssumptionsBefore one can begin to accept Dow Theory, there are a number of assumptions that must be accepted. Rhea stated that for the successful application of Dow Theory, these assumptions must be accepted without reservation.
Manipulation
The first assumption is that the manipulation of the primary trend is not possible. When large amounts of money are at stake, the temptation to manipulate is bound to be present. Hamilton did not argue against the possibility that speculators, specialists or anyone else involved in the markets could manipulate the prices. He qualified his assumption by asserting that it was not possible to manipulate the primary trend. Intraday, day-to-day and possibly even secondary movements could be prone to manipulation. These short movements, from a few hours to a few weeks, could be subject to manipulation by large institutions, speculators, breaking news or rumors. Today, Hamilton would likely add message boards and day-traders to this list.
Hamilton went on to say that individual shares could be manipulated. Examples of manipulation usually end the same way: the security runs up and then falls back and continues the primary trend. Examples include:
PairGain Technology rose sharply due to a hoax posted on a fake Bloomberg site. However, once the hoax was revealed, the stock immediately fell back and returned to its primary trend.
Books-A-Million rose from 3 to 47 after announcing an improved web site. Three weeks later, the stock settled around 10 and drifted lower from there.
In 1979/80, there was an attempt to manipulate the price of silver by the Hunt brothers. Silver skyrocketed to over 50$ per ounce, only to come back down to earth and resume its long bear market after the plot to corner the market was unveiled.
While these shares were manipulated over the short term.
#bharatjhunjhunwala
#dowtheory
#technicalanalysis
#stockmarkethindi
#sharetrading
#sharetips
#sharemarket
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