Stock Trading Tips

Stock Trading Tips - Stock Charts DOW Theory Part 2

Yesterday's video explained the first 3 tenets of Dow Theory today's video deals with tenets 4, 5 and 6 . All 6 tenets of DOW theory are very important when it comes to stock trading, online or otherwise.

Tenet 4 states that averages must be nutually confirming

Thus a rise in the DOW Jones Industrial Average needs to be confirmed by a rise in the DOW Jones Transportation Average. Any divergence in these two indexes signals a pending change - otherwise it confirms the trend. Although this tenet is not so relevant nowadays as the US is based more on service on manufacturing.

Tenet 5 states that trends need to be confirmed by volume

This still applies today. If the price change is accompanied by volume it means lots of people are taking part

Tenet 6 states that until signals prove otherwise

"The trend is your friend till the bend at the end" It is very important when trading stocks short-term and medium-term to find signals that show that a trend is coming to an end .

According to Dow, the trend should be followed until it is obvious that it has ended. Deciding when the trend is over is of course the hard part and analysts tend to disagree.

Currently (OSeptember 2009) many were expecting the markets to fall back to re-test the March low of 6500 and some were saying it would go down to 4000 ! So far it hasn't, and has rallied back to 9700.

1702 was important on the NASDAQ, but it didn't fall back through 1702 which was seen as very bullish and a sign that markets would continue on upward, which they did !

Technical analysis i.e. understanding stock charts is absolutely essential for stock trading and to try to trade stocks without some basic understanding of stock charts would be unwise.

Dow Theory Part II by informedtrades.com




See also Stock Charts for Beginners