Technical Analysis

Indices (prices) take everything into account. According to Dow's theory, any factor capable of influencing supply or demand in any way will always be reflected by the index (price) dynamics, regardless of whether this factor is an earthquake, a disaster or anything else. Of course, such events are unpredictable; however, they are instantly noted by the market and are reflected by the price dynamics.

There are three trend types in the market.

Dow's trend definition looks like this: in an ascending trend, each subsequent peak and each subsequent decline is higher than the previous one. In other words, the outline of a bull trend must have consecutive rising peaks and declines. Accordingly, in a descending trend, each subsequent peak and decline will be lower than the previous one. This trend definition is fundamental and serves as the initial point in trend analysis. Dow marked out three trend types: primary, secondary and minor. He emphasized the primary, or basic trend, which lasts over a year and sometimes a few years. The secondary, or transitional trend is correctional toward the primary one and usually lasts three weeks to three months. Such transitional corrections make up 1/3 to 2/3 (very often half or 50%) of the distance that prices cover. Minor or short trends last less than three weeks and are short-term fluctuations within the transitional trend. The main trend has three stages. Usually it is possible to distinguish between three phases in the main trend. Phase one, or the accumulation phase occurs when most far-sighted and well-informed investors start purchasing, as all the unfavorable economic information has been taken into account by the market. Phase two comes when those who use technical methods of following trends join the game. Now prices soar and economic information becomes all the more optimistic. The trend enters its third, or final phase when the general public gets engaged in the action and the market is in a rush, which is stirred up by mass media. Newspapers are writing about the hour of triumph of bulls, economic forecasts are full of optimism, speculative turnover is on the rise. And this is the moment, when well-informed investors who have been accumulating during the rise of the bear market when no one wanted to buy start selling when on the contrary everyone is trying to buy.

Indices should confirm one another. Dow believed that any important signal for the rise or fall of the market price must be reflected in the values of several indices.

The trade turnover should confirm the trend pattern. Dow thought the trade turnover to be very important for the confirmation of signals obtained from price curves, i.e., the turnover must go up in the direction of the main trend.

A trend is effective until it explicitly shows that it has changed. This means that the trend that initiated the movement will try and continue it. It is a piece of a job to determine the trend break signals. But the analysis of the support and resistance level, price models, the trend line, floating averages together with other technical instruments will help you to understand that a break is emerging in the dynamics of the existing trend. The strategy is virtually the same for all markets. The nature and regularity of the price movement is studied. Technical analysis is divided into two methods: Charting and Mathematical