Expl. Do you think Dow Jones Theory is Important in technical analysis?![4.jpg](h(https://cdn.steemitimages.sis?
The Dow Jone/DQmaybUM6udVkd8w6vjY3x64Gu4XpsZ8QmjuTsggELMDWFz/4.jpg)
operations of the market by stating, for example, that an uptrend would be observed in the market if it is seen that one of the averages of the market has clearly moved above another important level which had occurred previously. This movement which defines the uptrend must also be accompanied by the same kind of advancement or upward movement being witnessed in another average.
These two averages in consideration are the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA). So, for instance, if the DJIA is able to move up to an intermediate high, the DJTA should within a reasonable period of time follow the same upward movement of the previous average. Actually, this theory is based on a popular notion which believes that the financial market is able to discount everything in a manner that follows the principles enunciated in the hypothesis of the efficient markets.
In the beliefs of the theory which were actually published after the death of Charles Dow, it is believed that the financial market had market conditions which could on the overall be reliably measured within the economy of such a market. Consequently, if one should analyse the overall market setup it should be possible to gauge very accurately all those conditions and be able to determine the direction in which the major market is moving or trending.
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d in the market
This statement is based on a certain Efficient Markets Hypothesis (EMH). This hypothesis states that all the available information in the market is usually incorporated into the price of an asset. Hence, this hypothesis is actually the very opposite of behavioral economics.
2). The market has three primary kinds of trend
In this theory it is believed that there is usually a primary trend in the market which can continue for up to a year or more. This trend could be a bullish trend or a bearish one. Within this particular primary trend, which is recognised as the broader trend, a secondary trend could exist which would normally be in a direction that is different from that of the primary; these secondary trends can be generally classified as pullbacks.
3). Usually, there are three phases to the primary trend
Based on the Dow Theory, the primary trend is expected to pass through three different phases. In an uptrending or bullish market these phases include the accumulation phase, the phase of public participation or the phase of big move and the phase of excess. Conversely, in a bearish market, these would be the distribution phase, the phase of public participation and the phase of despair or panic.
4). Indices are expected to confirm one another
Based on the postulation of the theory, market averages or indices are expected to confirm each other before a particular trend can be established. What this means is that for a particular signal to occur on one average, a corresponding signal should occur on the other. It should not be assumed that a new trend has become if the signals of the two indices are not the same.
5). A trend must be confirmed by volume
In this it is expected that if the price is moving in any observable direction then the volume should increase. So, the volume should decrease if the trend is now moving against the primary trend. Consequently, volume should not increase during pullbacks. However, if it should increase during pullbacks then it should be anticipated that a trend would actually develop in the direction of the pullback which is opposite to the primary trend.
6). Trends would continue until a reversal clearly occurs
Actually, a confusion could arise in determining the end of a primary trend. Hence, it will not easily be determined whether an upswing that occurs when the market is going down is actually a reversal or just a rally that would be short-lived. The theory suggests that a lot of caution should be applied in confirming trend reversals.
Really, I think the theory is actually important in technical analysis. In fact, I find it very interesting. By looking at its postulations you would understand that a lot of things that are considered and favored are actually in tandem with much of what professor @reminuscence01 has enunciated in the psychology of market trends in his lecture. So, I believe the Dow Theory can be very helpful when considered for technical analysis. Interestingly, it has been used for more than 100 years.
your own words, explain 100 years.
The accumulation phase in the crypto market refers to a period
emain stable quite fairly. On the price chart you can identify this period by a sideways movement of the market and sometimes it is accompanied by volume which is above-average. During this period the price may not fall below a particular price range and this could be a confirmation that indeed large quantities of a particular asset is being acquired.
Oftentimes, the accumulation occurs at the bottom of a downtrend. When the price begins to fall greatly during a downtrend more selling uired.
et. It is at this point that the institutional traders begin to exit their sell positions and take profit out of the market as a result of large sell orders of retail traders available to fill their buy orders.
The price of the asset slows down tremendously and because there is a lot of sell liquidity, they open their very large buy orders and the market begins to advance bullishly. With this slight bullish advance retail traders now close their sell orders and begin to long the market. This eventually leads to a trend reversal to the upside.
Later on there could be a phase of reaccumulation because the traders who had entered early during the accumulation phase begin to partially offload their positions. This leads to price retracing slightly creating a low point. This is an opportunity to buy more and unless the price breaks below the lowest point of the reaccumulation phase the uptrend has not yet been invalidated.
In the distribution phase the market experiences a lot of selling pressure particularly being carried out by institutional traders. The price of the asvalidated.
z/4.jpg) a confirmation that a large quantity of the asset is being sold off.
The distribution phase usually occurs at the top of an uptrend. When the price rises greatly a lot of buying pressure is witnessed in the market and retail traders who do not want to miss out begin to open by orders. At this point ind off.
ice which had been moving upwards tremendously begin to slow down. Due to the fact that there is a lot of buy liquidity from retail traders they begin to open large sell orders which pushes market bearishly. As the market makes slight bearish advances retail traders will now close their buy orders at some loss and then go short making price to eventually reverse and continue downwards.
The market moves down sharply and there could be a face of redistribution where the traders who had entered early at the accumulation phase begin to take partial profits. Price retraces slightly creating a high point. This presents an opportunity to open more sell contracts and unless the price breaks above the highest point of the redistribution phase the downtrend has not been invalidated.
1>Explain the 3 phases of the market and how they can be identified on the chart
as been observed that the market always moves in three different phases. It i
ssible to identify them by relying on indicators. However, these indicators may lag and
as bation where the overall movement and direction of the price of an asset is observed to be going upwards. In this situation the market creates peaks and troughs successively with each succeeding one going higher than the once earlier formed or the preceding one. Consequently, the uptrend is made up of higher swing lows together with higher swing highs.
Uptrends are usually fueled by the presence of exceeding demand. In this situation a lot of traders or investors wish to purchase an asset in the presence of limited available supply of the asset. Most times uptrends happen when there are positive changes occuring in the fundamental factors that are associated with the business model of the blockchain which the asset underpins.
In the image above you will discover that the market is in an uptrending phase with the creation of higher highs and higher lows. For an uptrend to be invalidated the price actionve changes occur
ring in the fundaeeding higher low or swing low and continue downwards.
Trendlines can be used to identify uptrends. These trendlines as shown in the image must connect the higerpins.
an be interconnected by the trendline. Once the trendline is broken by the price action downwards we should anticipate a reversal to the downside.
A downtrend describes a market phase that is generally described as a bearish phase. In this market condition the overall movement and direction of the price of an asset is observed to be going downwards. The market creates lower highs and lower lows in succession with each succeeding one going lower than the ones formed earlier or the preceding one. So, the downtrend consist
ple who are williWFz/4.jpg)
Downtrend the demand for it. This reduces the value of the asset and drives the price downwards since there isn't enough demand in the market to meet the available supply. Most times downtrends happen when there are negative changes occuring in the fundamental factors that are associated with the business model of the blockchain which the asset underpins.
In the image above you will discover that the market is in a downtrending phase with the creation of lower highs and lower lows. For the downtrend to be invalidated the price action will have to break above a proceeding lower high or swing high and continue upwards.
Trendlines can be used to identify downtrends. This trendline as shown in the image must connect the lower highs with at least two points. For it to brpins.
trend line is broken by the price action upwards we should anticipate a reversal to the upside.
It is either called a ranging phase or a sideways market. It is so called because in this situation or market condition the price action is observed to be trading within a range of prices. The market moves back and forth between two points of a lower price and a higher price. The market is said to be flat, choppy, range-bound or sideways.
The price action creates a higher price range which constitutes a resistance area and stops the p.
pg](http4.jpg](hwer price range which is now /DQmaybUM6udVkd8w6vjY3x64Gu4XpsZ8QmjuTsggELMDWFz/4.jpg)
y markets the price could create a range that could be small or large.
In the image above it is observed that the price has been oscillating between a higher price point and a lower price point for some time. The higher price point creates a resistance above which the price is unable to go. The lower price point is the support where the price seems to meet more demand that pushes it upwards again.
Explain the importance of the Volume large.
ading volume is an indicator which measures the amount of an asset that has been purchased or sold within a period of time. In the case of assets or stocks you would measure the volume based on the number of shares that have been traded while in options and futures it refers to the number of contracts that have been ex
volume indicator with other indicators for technical analysis could be instrumental in helping you make good trading decisions and increase your
fore any market can trend in any particular direction there must be a commensurate increase in momentum and volume coming into the market. This refers to the inflow and outflow of shares or contracts coming into or going out of the market. If the market rises but the volume does not rise then there is weakness in the market as such uptrend may just be momentary.
In the image above the market enters a bullish phase and this is accompanied by an increase in market volume. This increase in market volume signifies that a lot of strength has come into the market. As the strength increases with increasing volume the market can be seen as a healthy uptrend and a strong one. If the price should get to new highs and the volume decreases drastically a reversal could be in the offing.
During a bearish market phase, the volume is expected to increase. For any trend to exist in any particular directionentary.
sing in that same direction of the market. In the case of futures or options it means that the number of contracts are increasing. If the market is falling but the volume does not increase or rise then it means the trend is weak and may not last.
In the image of the crypto chart shown above the market enters a bearish tren
e strength of the market is increasing together with the volume.
There is indeed a healthy downtrend and this is likely to gain the confidence of traders as it is expected to last longer. However, if the trend should move downwards and the volume does not increase with it, then there is the likelihood of a reversal occuring.
During a ranging market the volumet last.
is an ongoing struggle for supremacy between the buyers and the sellers. The market is seen not to have any momentum in any particular direction and the volume would consequently be very low or flat.
This can be seen in the image above where the market is observed to be in a situation whereby the forces that propel demand and supply are at an equal balance. However, if there is a breakout in any particular direction the volume would shoot up sharply signifying that momentum has entered the
in the trade criteria for the three phases of the market. (show screenshots)
ussed the different r flat.
e trades in each phase. There are a few criteria to consider in each phase and they are examined below.
Bullish Trade Criteria:-
You should follow the criteria below to trade an uptrending market:-
* First, you should ensure that the market is actually in an uptrend where it creates higher highs together with higher lows. This must also be followed by increasing volume.
* Once an uptrend is confirmed we should patiently wait for the price to make a retracement - which it must often do - to a low point earlier created. The moment you are able to c
the price forms a strong bullish candle or a strong bullish pattern.
* We should place our
That is, a trade where you stand to lose more than what you could gain. This means that the place you put your stop loss must be of smaller ratio when compared to where your potential profit is.
This is shown below:-
For a bearish trade you should follow the criteria enunciated below:-
* First, you should ensure that the market is actually in a downtrend where it creates lower highs together with lower lows. This must also be followed by increasing volume.
* Once a downtrend is confirmed we should patiently wait for the price to make a retracement - which it most often does - to a high point earlier created. The moment you are able to confirm that the price bounces off from the high point and continues in the original direction of the breakout, we should make a sell entry when the price forms a strong bearish candle or a strong bearish pattern.
* We should place our stop loss above the high point that had justown below:-
Bo do it sideways markets. This is because even technical indicators could begin to give a high rate of false signals and even crossovers in this situation. Moreover, in this market condition a lot of manipulative ventures are usually undertaken by institutional traders. So, it is always best to stay away and trade trends, hence, it is said that the *trend is your friend*.
However, in case the sideways market becomes prolonged and you observe that a particular level of resistance and support have held severally, you could consider opening short positions at the resistance and long positions at the support levels. Your stop loss should be placed above the highest point of the resistance and below the loweown below:-
![iMarkup_20220316_224555.png](https://cdn.ss shown below:-
Sideways MarkGu4XpsZ8QmjuTsggELMDWFz/4.jpg)th the Trade criteria discussedh6>
arry out this section on the [tradingview.com]() platform demo trading account.
* For the buy trade I ensured that the RUNE/USDT pair was in an uptrend by identifying higher highs and higher lows on the 4 hour time frame
* I waited for the price to make a pullback on the 1 minute time frame and had formed a bullish engulfing candle. I took my entry
* I set my stop loss immediately below the lowest point of the pullback and set my take profit by considering an upcoming resistance
I will cjpg)
I wiet to make a pullback to a high level that had just been broken downwards. With the formation of a strong bearish can do I took my sell entry
* I set my stop loss above the highest swing point of the pullback and set my take profit by checking for the anticipated sustance
Jones Theory is quite important because looking at it it has a fundamental explanation for the three different phases that can be observed in any financial market. It is said to be the parent of most of all the other theories that have been formed around trading in this modern era. It has quite an impressive explanation of the bullish, bearish and sideways conditions of the market.
By understanding the activities of institutional traders that often take place during accumulation, reaccumulation, distribution and the redistribution phases of the market one can rightly increase his win rate in the trading of cryptocurrencies. This is due to the fact that it will help you overcome manipulations often encountered in the world of trading and be able to trade alongside the institutional traders which is a venture that would often offer very high returns.
The Dow Jones