In our previous post as we have discussed basic tenets of Dow theory used while application of Dow theory in technical analysis, so in today’s post we are continuing our same topic with extension and thoroughly study of tenets of Dow theory and it’s implications over stock market.
Market Have 3 Trends – It is the very first tenet of Dow theory out of the all six, and it is very important and valuable concept which is used before analyzing a stock, without knowing this concept you can never go ahead to technical analysis of stock in other words you can say it is a base to analyse stocks through technical analysis.
Market Have 3 Trends
What does it mean?
First tenet of Dow theory states that market have 3 trends, these trends are Uptrend, Downtrend and Correction.
Uptrend: Uptrend is that trend when stock price makes new highs from it’s previous price movements for a particular time period then that time period is in uptrend for that stock, such trend are also known as bullish trend.
For example: In the above Six Month, Daily, Nifty candlestick chart you can see that the market price movements shown are in Uptrend, it is the current market price chart for the last six months from now i.e today 29th May, 2013.
Downtrend: Downtrend is that trend when stock price makes new lows from it’s previous price movements, such trends are also known as bearish trend or bearish market.
For example: In the same chart you can also see the phase of a downtrend which I have marked in the above image, In this downtrend there is in between a correction phase, now we will discuss that what correction Is?
Correction: Correction is that phase in which stock prices moves opposite the current trend for a shorter period of time, weather it’s downtrend or uptrend.
For example: In the above chart you can see the small phases which are marked as correction, these phases have worked opposite to their current market trends.
In our next post we will discuss about Second Tenet of Dow theory, so don’t forget to subscribe our newsletter if you don’t want to miss any update, stay tuned!