How to Read Stock Market ChartsAround 1900 Charles DOW was analyzing the movements of the DOW Jones Industrial Average and the DOW Jones Transportation Index when he found that these indices tended to move in a predictable way over time.
This is considered by many to represent the beginning of technical analysis and is used by a great many experts and non-experts in stock trading.
There are 6 tenets to DOW Theory, here are the first 3 :-
- Markets have three trends - an uptrend, a downtrend and a correction i.e. the market moves up corrects then continues to move up.
- Trends have 3 phases - the accumulation phase (when the experts are taking positions) - the public participation phase (which leads to rapid price increases) - the last phase is the excess phase when rampant speculation catches on but the smart movement starts exiting the trend.
- Markets discount all news so that once news is released it is generally too late, the markets have already taken it into account - so to beat the market you need to look at technical factors not fundamental factors.
All this is said so much better than I could say it in this video by informedtrades .com