DOW Theory Introduction (2)
1. The Bullish Market is characterized by an advanced Primer Trend and usually consists of three Namely:
Accumulation or collective stages occur when clever investors start buying stocks at low prices from sellers who are under pressure because economic news is still bad and often the worst. Trading activity is usually moderate during this stage but starts to increase.
The General Participation Phase is a phase marked by steady progress accompanied by increased activity as the company improves and begins to attract attention. Also, the entry of market participants like speculators. This is usually the most profitable stage for technical analysts.
The Distribution phase is characterized by phenomenal progress as more and more people are attracted to the market and are looking for a level of equilibrium price.
2. The Bearish market is characterized by a downward trend of Primer and like the Bullish Market, usually consisting of three stages:
The Distribution Stage occurs when the astute investor who buys during the previous bullish market accumulation phase begins selling their holdings. Trading activity is usually still high during this stage but starts to decline.
The following Panic Stages as the number of buyers begins to diminish and the necessity of selling becomes more urgent. The downward trend becomes rapid as the vertical fall is near that is indicated by the volume. This stage is usually followed by a long recovery (Secondary Trend) or sideways movement before the final stage begins.
The Final Stage is characterized by the sales of defiant buyers who survived through panic stages or purchased during the recovery period. The desperate sales were not as loud as in the panic phase.
3. The average index value must be mutually confirm. This is an important principle and argues that the Dow Jones Industrial Average value must be confirmed by the value of Dow Jones Transport Averages. In other words, the two averages should move in the same direction of estimate. If both averages do not match the same trend, then the trend is not 100% valid.
Well, Dow theory is what started the technical analysis and all the technical analysis tools based on this theory. Especially the formation of bullish and bearish markets.