Find out! What are the Benefits and Influences of Strong Dow Theory on the Forex Market?
When viewed from its history, it can be seen that Dow Theory was specifically made to analyze stocks in the market. Dow theory turns out to have benefits as a method for predicting markets in the forex market that focuses on the long term.
This gives a brief explanation that Dow Theory is very useful for focusing analysis for several months to years. The results of the analysis obtained will be better when compared in a shorter time.
Through the above explanation also Dow Theory is very important in long-term analysis. Even so, short-term traders can still use Dow’s Theory as an analytical tool. The thing to note is that the trader must focus more on analyzing in the long run. In the long-term trend, you will easily identify areas that have high levels of volatility.
In this discussion we will focus on discussing Dow Theory and its influence on the forex market and see if it still has strong relevance to date.
The following is a further explanation.
Relationship of Dow Theory and Its Relationships to date
There are doubts that the Dow Theory is not a history of important and large technical analysis. Though many parts of Dow Theory are the basis of what we now know. Not only that, the aspects in the Dow Theory are also closely related to other theories such as Elliot Wave Theory.
However, due to the various updates in it, the relevance of Dow’s theory as an independent analysis technique is weakened. This can happen because there are now more and more comprehensive techniques and analytical tools. The technique is part of Dow Theory whose scope is expanded.
In addition to the above problems, there are also other problems that make traders who follow this theory cannot get greater profits. This happens because of the conservative size of the trend direction propagation signal.
The above can occur in detail because the existing signal will be confirmed when there is a consecutive highest price or lowest sequential price. Where when the market has shown a clear signal of a reversal, the market has made a big profit.
Other Problems You Need to Pay Attention to
In addition to the problems we have stated above, Dow Theory, which has been using the economy as an index, has experienced many significant changes. This makes the relationship between the two sizes that have been used as a tool to analyze becomes weak.
A simple example of the above problem is that the industrial and transportation sectors are no longer the dominant thing in the economy. At present technology has become an important part of growth and production in the economy.
At present the economy has become segmented into several parts and ultimately requires more indices which will ultimately reduce Dow Theory’s accuracy.
Is the Dow Theory No Longer Important?
Although the explanations we have presented above show that the Dow Theory has several weaknesses that need to be considered well, this theory is always important as your technical analysis.
Another important thing in this theory is that market emotion is a characteristic of the market trends. The theory developed by Charles Dow will greatly help investors to increase their knowledge regarding the market and make them able to make better decisions and get more profits in the investments made.
Important Things to Look For in Dow Theory
In general, we can understand that this theory is the beginning of technical analysis. Thus, when you understand well this theory will make you understand more about technical analysis.
The important thing you should know about the Dow Theory is this theory is what was formulated by Charles Dow which provides an overview of Dow’s views on the way the stock market works and how the market can be used to measure the existing business conditions.
When making this theory, he was very confident that the existing stock market was an important measure and very reliable as a measure of a business condition in the economy . By analyzing the entire market, one can accurately get the conditions and find out the direction of the market and its possible movement.
Notice 10 Things in Dow Theory
-The market discounted everything
-This theory will use trends to determine the direction of the market that is happening
Primary Primer shows the main market trends
Secondary trends are corrections that occur in the Primary Trend
Primary Primary events that occur are formed from 3 phases that need to be passed, namely the accumulation phase, the public participation phase, and the excess phase. On the other hand in the downward trend there are 3 phases, namely distribution, public participation and panic phase.
-Volume must confirm the trend. The index will be used as the main signal and can identify price movements in a stock. Furthermore, there is a volume that is useful as a tool to help confirm what is indicated by price movements.
-Trenches will always last until a signal of reversal comes
-Furthermore the Dow Theory will rely heavily on closing prices when determining trends, not intraday price movements.
Finally, peak & trough analysis is the main analytical technique when identifying trends in the Dow Theory
Such are the benefits and influence that the Dow Theory can provide in the forex market that you are currently wrestling with. Although there are many more comprehensive indicators, this theory in fact still provides many benefits to its users.
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