To share awareness for the beauty and history of our art of Technical Analysis of financial markets, in this educational post, I look at the six fundamental principles of Dow Theory, applied to Bitcoin and its current macro/local trends.
Dow Theory Principles;
1. Markets Discount Everything 2. The Market has 3 Trends 3. Major Trends have 3 Phases 4. Markets must Confirm Each Other 5. Volume must confirm the Trend 6. A trend is assumed to be in effect until is shows clear signals it has reversed
[Below is a summary of who Charles H. Dow was and his impact, by John J. Murphy;
“ Charles Dow and his partner Edward Jones founded Dow Jones & Company in 1882.
Most technicians and students of the markets concur that much of what we call technical analysis today has its origins in theories first proposed by Dow around the turn of the century.
Dow published his ideas in a series of editorials he wrote for the Wall Street Journal.
Most technicians today recognize and assimilate Dow's basic ideas, whether or not they recognize the source.
Dow Theory still forms the cornerstone of the study of technical analysis, even in the face of today's sophisticated computer technology, and the proliferation of newer and supposedly better technical indicators.
On July 3, 1884, Dow published the first stock market average composed of the closing prices of eleven stocks: nine railroad companies and two manufacturing firms.
Dow felt that these eleven stocks provided a good indication of the economic health of the country.
In 1897, Dow determined that two separate indices would better represent that health, and created a 12 stock industrial index and a 20 stock rail index.
By 1928 the industrial index had grown to include 30 stocks, the number at which stands today.
The editors of The Wall Street Journal have updated the list numerous times in the ensuing years, adding a utility index in 1929.
In 1984, the year that marked the one hundredth anniversary of Dow's first publication, the Market Technicians Association presented a Gorham-silver bowl to Dow Jones & Co.
According to the MTA, the award recognized "the lasting contrbution that Charles Dow made to the field of investment analysis.
His index, the forerunner of what today is regarded as the leading barometer of stock market activity, remains a vital tool for market technicians 80 years after his death.
Unfortunately for us, Dow never wrote a book on his theory.
Instead, he set down his ideas of stock market behavior in a series of editorials that The Wall Street Journal published around the turn of the century.
In 1903, the year after Dow's death, S.A Nelson compiled these essays into a book entitled The ABC of Stock Speculation.
In that work, Nelson first coined the term "Dow's Theory."
Richard Russell, who wrote the introduction to a 1978 reprint, compared Dow's contribution to stock market theory with Freud's contribution to psychiatry.
In 1922, William Peter Hamilton (Dow's associate and successor at the Journal) categorized and published Dow's tenets in a book entitled The Stock Market Barometer.
Robert Rhea developed the theory even furtherIn the Dow Theory (New York: Barron's), published in 1932.
Dow applied his theoretical work to the stock market averages that he created; namely the Industrials and the Rails.
However, most of his analytical ideas apply equally well to all market averages. “
John J. Murphy, Technical Analysis for the Financial Markets, 1999, Page 23-24
Yep, Dow Theory is great
A little overpassed because an increasing manipulated market.
Yemala
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@M4ST3RF0X thanks got the feedback!
mehrhpm
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you're sincerely , yemala , for putting nice and usefull post, I am also interested about designing of Fibonacci analysis for crypto and stocks; if it possible, thanks agaiiiiiin.👍😊
Yemala
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@mehrhpm, Hey what's up!? - Thanks for the feedback, I believe Dow Theory principles apply fundamentally to all financial markets, (in an adapted form - like how BTC relates to stocks etc.)
As for Fibonacci, what would you like to know?
I have an interesting post on Trend Based Extension Fibs, overlayed with an inverse Fib Retracement on the last 100 years of SPX should you care to look;
You'll see some interesting correlations with FIBs and significant market corrections..
Let me know your thoughts! 👏
yemala
mehrhpm
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thank you so much, I would like to learn how put or analysis the Fibonacci retracement for a crypto like Bitcoin or other altcoins in specific price on multiple times frame and based on, I decide to entry or excit the trade, I hope my expression was clear. 👏👏
d-MR96nBa
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Say, that's a great secondary screenshot you have there 😉
Yemala
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@d-MR96nBa haha hopefully now no 27” monitors required to see my ideas 😅
A little overpassed because an increasing manipulated market.