[Technical Post] The Cornerstone of Technical Analysis - Dow Theory

There are many theories of Technical Analysis, and Dow Theory is an unavoidable one, without exception.
1. Trend Line Analysis: Dow Theory emphasizes the importance of trends, and trend line analysis is a core component of it. By drawing trend lines, one can identify the major trends, minor trends, and temporary trends in the market, as well as determine support and resistance levels.
2. Chart Pattern Analysis: In Dow Theory, specific patterns in price charts can provide predictions about price trends. Some common chart patterns include head and shoulders, double tops, double bottoms, triangles, etc. By observing the emergence and evolution of these patterns, future price trends can be predicted.
3. Volume Analysis: The Dow Theory holds that volume is one of the important indicators of price movement. By observing changes in trading volume, one can confirm the continuation or reversal of trends and assess the emotions and strength of market participants.
4. Confirmation and Cross-Validation: Dow Theory emphasizes the confirmation and cross-validation of trends. When the market reaches new highs or new lows, and trading volume also increases accordingly, the continuation of the trend can be confirmed.
5. Use of Indicators: Although Dow Theory is primarily based on price and volume data, it can also be combined with some technical indicators for analysis. For example, moving averages can be used to smooth price data and identify changes in trends, while the relative strength index can be used to assess overbought and oversold conditions in the market.
Basic Principles
1. The average price encompasses all factors.
2. The market has three trends.
3. The major trend is divided into three stages: accumulation, warming, distribution.
4. Multi-Indicator Resonance
5. Volume and Price Move Together - Trading Volume Confirms Trend
6. Reversal Signal

The technical analysis methods based on Dow Theory mainly include:
1. Trendline Analysis: Trendline analysis is used to identify the support and resistance levels of major trends and intermediate trends.

2. Chart Pattern Analysis: Chart pattern analysis is used to identify specific patterns in price charts, such as head and shoulders and double bottoms, to predict future price movements.

3. Trading Volume Analysis: Trading volume analysis is used to observe changes in transaction volume to confirm trends and assess the sentiment of market participants.

It is important to note that the Dow Theory is a subjective analysis method that relies on the interpretation of price charts and trading data by technical analysts. In practical application, it can be combined with other technical indicators and quantitative models for comprehensive analysis to increase the accuracy and reliability of the analysis.
At the same time, changes in market behavior and the environment may lead to different effects of Dow's theory. Therefore, investors should approach it with caution and make decisions in conjunction with other analytical tools and risk management strategies. #道氏理论#