By the way, while learning about technical analysis, I just remembered an important thing that most new traders overlook — that is, the foundation of most modern trading methods is based on the Dow Theory, a theory that has existed for nearly 100 years.

The beauty of the Dow Theory is that it’s not very complicated. Basically, it states that stock prices move like ocean waves — during an uptrend, each new high will be higher than the previous high, and each new low will be higher than the previous low. Conversely, during a downtrend, everything reverses. Simple but very effective.

I see many people confused about the types of trends. In fact, the Dow Theory divides them into 3 types: primary trend (lasting from 200 days up to 4 years), intermediate trend (from 3 weeks to 3 months), and short-term trend (less than 3 weeks). Each type has its own role in your trading strategy.

The most important lesson from the Dow Theory is that you must correctly identify the market phase. There are 3 main phases: accumulation phase (when prices are still low, and smart investors are entering), public participation phase (when prices clearly rise, and short-term traders jump in), and distribution phase (prices surge quickly, then show warning signs). Those who enter during phase 2 will make money, while entering during phase 3 is very risky.

I also want to mention the concepts of Double Bottom and Double Top — these are very strong reversal signals. Double Bottom looks like the letter W, indicating the price is about to rise. Double Top looks like the letter M, indicating the price is about to fall. If you understand these, you can avoid many losing situations.

However, the Dow Theory also has limitations. It tends to be slow in confirming trends because by the time you are sure of a new trend, the price has already moved quite a lot. Additionally, it relies only on price and volume, without considering the fundamental factors of companies or the economy.

In reality, once you understand the Dow Theory well, deciding when to buy or sell becomes easier. If the market is in an uptrend (Higher High, Higher Low), you can buy. If it’s in a downtrend (Lower High, Lower Low), you can sell. Platforms supporting both trading directions, like CFDs, are even better because you’re not limited to just buying.

The best part is that the Dow Theory doesn’t require you to be an economic expert or have complex knowledge. Just look at the charts, identify the trend, and follow your plan. If you’re a beginner, it’s recommended to practice on a demo account first, then switch to live trading.

In summary, the Dow Theory remains a golden foundation in technical analysis. Although old, it’s still very useful. Anyone interested in long-term trading should spend time learning this theory.