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

Stock Trading Charts for Beginners

Online Trading Made Easy - Stock Market Charting for Beginners

Stock trading appears to many to be at a crucial turning point at the moment. In the past few days I have seen 3 people predict a stock market crash. Rod Huusinen says it may have already begun, Enzio von Pfeil and Bob Flower independently say it is coming in October and it will be big.
The markets however sem to be determined to keep on going up - the DOW was up another 56 points today and the S&P was upanother 3. Stock markets have been rising steadily since the lows on March 9 and the S&P has risen over 50% in just 7 months.

So who is right are the markets going to carry on up or are we headed for an almighty crash. Well, I don't know, but I am convinced that whatever happens we will see it in the charts first. If you don't know how to read stock market charts then you really need to learn a minimum, as all traders use them and more often than not base their investment decisions on them. So to attempt stock trading online without understanding what other people are doing is suicide !

With this in mind here is a short but very informative video on DOW theory to introduce the basics of stock charting - by the guys at informedtrades.com. - the basic concept to retain is that technical analysis can help you get ahead of the market whereas fundamental analysis can't, news is of little use, as it is nearly always already reflected in the share price. Unless you are the next Warren Buffett that is and are ready to invest for the long term using only your knowledge of the fundamentals of a company.

Stock Trading Technical Analysis - DOW Theory




Related posts on stock trading :-


Part 2 - Stock Charts for Beginners
Online Trading
Technical analysis
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