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Trends in theory - the Dow Theory Dow Theory
Dow theory is the originator of all market research ,although so far has had the history of nearly hundred years ,but the fluctuation of the market, the Dow theory basic spirit is still valid .
Dow Theory by Charles .The record ,in death, William .Hamilton and Robert inherited the Dow Theory and Rhea .Further Dow Theory tissue induction and carry forward .The Dow theory is not only a technical analysis method and price movement patterns, at the same time it is also a great philosophy about the market .
The Dow theory tells us ,today behavior and 100 years before themarket behavior is no different. Although the Dow theory often because " ;party " should be too late ;has been criticized, and sometimes also by those who refused to believe the decision to sarcasm ( especially in the bear market in the early ) ,but as long as the stock market slightly the experience people will have heard of it .
The Dow theory has been the subject of most people Rhea in all of its related works are emphasize ," ;" theory ;in the design is a kind of lifting speculators or investors with the knowledge or tools ,and can not be separated from the basic economic conditions and Market status of a full range of strict technical theory.
According to the definition of the Dow Theory ," ;" ;is a kind of technology theory .In other words ,it is based on the price model of research, future price behavior of a method .
To understand the Dow Theory ,we must first understand the Dow theory several hypothetical Reja says .,to the successful application of Dow Theory ,must unreservedly accept these assumptions .
Hypothesis 1 ,main trend ( primary trend ) is unlikely to be rigged .Hamilton did not deny that speculators ,professional or other person may artificially interference index or stock price .
In several days ,weeks or trend fluctuations may also be operated manually, while the second reactions ( Secondary reactions ) may also be subject to the limited effects. However ,the main trend is not affected by the artificial control .
Hypothesis 2 ,the average of the market itself has been reflected and inclusive of all information. The volatility of market price has embraced the market for all participants hopes ,fears and expectations ,but also reflects the changes in interest rates, expected income ,the presidential election ,the production plan of all the information for the Chinese market .
Every one involved in the securities business people ,all his hopes ,disappointments and knowledge ,it will be reflected in the Shanghai Composite Index " ;" ;" ;" Shenzhen index ;or any other index of daily closing price fluctuation ;even if the fire ,earthquake ,war, disaster unexpected things ,market the index itself will also be assessed quickly ,in the short-term trend within the digestion ,the long-term trend remains unaffected.
Hamilton noted ,the market sometimes on good news make negative reflection ,the reason is very simple ,because the market action look ahead ,when good actually occur in the high streets and back lanes ,it has been advanced by price Digest .
Maybe this can explain the Wall Street a axioms: the gossip in the press to buy ,sell .This is Yahoo! Axis chart ,including blue vertical lines for earnings the week. In three consecutive quarter, even if the Yahoo! Each released earnings report exceeded expectations ,since the trend is still down .
In the market, tens of thousands of people every day to such as financial policy ,dilatancy ,leader speech ,institutional infractions ,gem layer as the theme to be continually assessed and sentenced.
Fault ,and to keep their own psychological factors to reflect the market decision-making .Therefore ,for most people the market always looks difficult to grasp and understand. If 3,Dow Theory and not be the pink of perfection .
Road and Hamilton readily admitted the Dow theory is not wrong market analysis tools .The Dow theory is just a set of assist investors and traders Market Research Guide and theorem .The Dow Theory provides a help investors considerable analysis of market mechanism.
Hamilton warned investors cannot be affected by their desire to influence .In the analysis of the market, should be subjective ,only to believe their own eyes ,but not in the analysis of added their own dreams or their own subjective wanted see things .
If investors to do more ,he may be more concerned about those cows signal ,while ignoring the bears signal .Instead, join the investors to temporarily leave the market or sell short, so he may be more inclined to pay attention to the price movement of the bear side.
The Dow theory is to establish an objective analysis of the mechanism of Dow Theory for the main trend .The study is very clear .If the Dow theory is not designed for short-term trading ,it still makes trading Benefits.
Because whether you choose what kind of transaction cycles ,recognize the main trend ( primary trend ) is very useful. According to Hamilton ,the successful use of Dow Theory people a year in the number of transactions will not exceed 4 to 5 times.
Remember the days ,weeks or even days trading secondary reentrant trend may be manipulated ,and the main trend will not .The Dow Theory ,and Hamilton find a filter Market noise method ,they not only heart several point fluctuations ,also do not pay close attention to the concrete bottom and head ,they mainly focus on how a major trend in the market ,and Hamilton grabbed most of the market .
Behavior is divided into three ,namely the main trend ( Primary Trend ,also called basic trend ) ,the minor trend ( Secondary Trend ) and daily fluctuations ( Daily Fluctuations ) .
The main trend the main trend continuation time can be from several months to several years ,represents the basic direction of the overall market ,they are large movement ,the main trend is the verbal bull or bear market.
To predict the main trend of the time and the length of the Dow theory is thurau .Road and Hamilton only cares about such as How to seize the main trends in the majority of market. And Dow theory just encourage people to believe their own eyes ,and not to imagine future events.
The bull market main trend ,the market will continue to go out more and more high ,the low back is also higher than the last point ( higher highs and higher for lows ) .Bear market main trend ,the market will continue to go out more and more low lows ,rebound high will be lower than the last high point ( lower highs and lower lows ) .
The minor trend the main trend in the evolution process of interspersed with and opposite to the direction of the secondary trend ,the minor trend may continue for several weeks to several months ,is the main trend advance your occurs when the withdrawal or adjustment.
In the bull market ,the minor trend called adjustment. In a bear market, the minor trend is called a rebound. In the figure above ,96 years in September,the Dow Jones Industrial Average ( DJIA ) hit a new high ,confirming the bull market began.
Thereafter from 5170 to 7158a total ofL 1988.From the point of the beginning of 7158, in March 97 DJIAafter falling for 3 weeks,this is obviously not a diurnal fluctuations ,http://adidasjeremyscottit.com,but a secondary trend.
Hamilton summarized some bull market and bear market in the secondary trend of some special Points: 1 ,the minor trend back to general amplitude of the main trend in the 1/ 3 to2 /3,the back 50%is the most typical .
2,the minor trend runs generally than the main trend to short and steep. 3,the end of secondary trend trend generally dull .Such as narrow price fluctuation ,the shrinkage of volume .
This will be shown in the minor trend stage amplification to further observation :April 7th to April 10th ( corresponding to the volume trend of relatively dull red line ) ,small price fluctuations ,48 bottles, test your personality,the volume is minimal since the fall .
Then DJIA first volume down ,then observed upward gap began to rise thereafter .Record high and brought to enlarge the volume ,description of the secondary trend adjustment has been completed, to enter the main trend direction .
Pay attention to point ,namely the second reactions is not necessarily to share price correction appears ,it may be possible to sideways instead of back ,and this is the Dow Theory in transverse arrangement ( lines ) .
The fluctuation fluctuation direction is possible with the main trend in the same direction or the reverse ,it lasts several hours to several days, but generally not more than a week. The Dow theory is that on the day Wave forecast no good, too much stress on diurnal fluctuations may lead to the prediction error and trading losses.
Indulge in 1 to2 days ofprice fluctuations ,is easily influenced by emotions and make wrong judgments. In the analysis of fluctuation will be the main trend in the overall pattern is printed on the mind is extremely important.
The fluctuation only and the other day fluctuation with combined consideration is important and meaningful .We can use the action of the sea and the stock market movements were compared.
The main trend is like tide .We can put a bull market is a flood tide, it will be the one one step to shore drive ,until finally reaching a a water level high and began to reverse.
The next is ebb or ebb ,can be likened to a bear market. However ,whether the tide or when the tide ,wave have been surging ,continue to impact the coast and retreat. In the process, each successive wave are the waves to reach the coast of higher level ,while the its back ,than its previous low back .
In the ebb process, each successive wave rises than the waves reach the water level low, while its back than the waves off the coast a little farther . these waves are the minor trend .
Primary or secondary then depends on the movement and the direction of the same or opposite. At the same time ,the sea has been constantly being small waves ,ripples and blast ,they have the same trend with the waves ,some on the contrary, some transverse through M this is like the market in diurnal fluctuation ,daily in a insignificant little bull trend .
The three stages for the collection ( positions ) stage in this stage ,the pessimistic atmosphere still control the market ,the public away from the market ,the market of bad news constantly.
But far-sighted investors and those of " ;intelligent capital " ;know although the market slump, but the situation is reversed ,so at this time began to gather the courage and luck are not the seller sold stock ,and gradually raise their bid to stimulate sales.
At this stage of the stock price is very cheap, but it seems that no one wants them. This phase of the public as the summer of 1974 ,Buffett affirms at that time is to buy shares and become rich good timing ,and everyone thought he was mad.
At this stage ,the stock began to find at the bottom and started quietly when stabilized .Price began to rise ,the public is still a general lack of confidence .When the market to reach the first peak and begin to withdraw ,shouted bear market is not the end.
At this time, a careful analysis to distinguish this withdrawal is a secondary reentrant trend. If retracement lows higher than the last point ,then it is a secondary reentrant trend.
When the secondary reentrant trend is completed and a began to rise ,and over the last point ,at this point, can confirm now in bull market main trend. The second stage for the big market phase of this stage is a steady rise ,the longest time, rise in price range is the biggest.
This stage ,volume of transactions with the company boom continues to increase, while corporate profits and expectations are beginning to rise ,the market environment has become more and more better .
It is also in this stage ,the skilled traders tend to get the maximum profit, trend followers also began to enter the market. This stage ,without a doubt ,is the most easy to make money stage third stages .
For excessive speculation stage third to stage is often accompanied by excessive speculation and on the surface of the inflation pressure .All people come in great numbers ,and the market confident.
A stage of just the contrast. Wall Street has a motto :when the taxi driver also began to stock recommendations ,the head is not far .The three bear phase the first phase to distribute ( shipment ) stage is to gather the bull phase characteristics ,distributing marks the bear market started .
" ;intelligent capital " ;meaning to the market environment and not be so good ,began to sell the stock. When prices fall, the market is still very few people believe that the bear market comes, most of the prediction is still stubbornness .
After a moderate decline ,there will be a second reactions rebound. Hamilton says the bear market bounce is very rapid and steep ,generally in a few days to several weeks earlier losses can be most inspiring .
The rebound ,the market still fantasy cattle alive .But the rebound height can reach earlier highs. When prices fall again ,and below the previous low ,can confirm is now in a bear market the main trend.
The second stage for the big bull market stage and the second stage ,the second bear phase round steady decline ,time The longest ,price range is the biggest. Market conditions began to deteriorate ,selling pressure constant .
For the third phase of despair stage at this stage ,almost all of them hope. Stock valuations have been lower, but the selling pressure did not alleviate the market participants can only hope to be in the hands of the shares .
Bad news constantly ,the economic outlook dark ,almost unable to find a buyer. The market will continue to fall ,until all of the bad news are inclusive in the stock price. Signal brea from the Tao and Hamilton are summarized 4 differentrules: trend identification ,buy and sell signals ,turnover and sideways .
Before the two rule is considered to be the most important ,were used to identify the current main trend is bullish or bearish trend .The recognition of main trend is the first step on the Dow Jones Industrial Average ( Dow Jones Industrial Average DJIA ) and the Dow Jones Transportation Average ( Dow Jones Transportation Average - DJTA ) .
An upward trend is rising the highs and lows of composition ( higher highs and higher lows ) .And a downward trend is formed by continuously lower lows and highs component ( lower highs and lower lo WS ) .
The Dow Jones railroad average 1992chart:from February to start with the head ,index along continue to lower lows and highs in the fall ,although 4-5has a secondaryreentrant rebound ( green circle) ,but its high and no more than the last high.
Even in the middle of October appeared higher bottoms ( green arrow ,Higher Low ) ,Nike Air Force 1 Mid,to judge the trend has reversed or premature. Trend only in a previous high was raised when broken to confirm (blue arrow) .
The beginning and the end of the bear market of simple diagram ( LH indicate lower highs ,said LL lower lows ,said HL higher lows) below is the Dow Jones Industrial Average 98-99 yeartrend : 98 years of October marked the beginning of a rising trend.
Over the next 11 months ,the DJIA out of the rising of highs and lows .December 98 (red circle ) and June 99 (blue arrow ) trend once rise to raise the question. However ,blue arrow office although not high, but the last bottom Powei no ,the question is not established.
On the red circle questions below are described. The main trend in the real is reversed in September 99 End ( red arrow) ,this time not only out of the record, but also broke through the last low formed low.
Note of two horizontal lines ,some traders think the above the first red line was broken that hit a new low ,trend change ,from the back of the trend of this judgment is fine .But it is worth attention is paid to the second root of the red line ,more the force that prop up, it is breakthrough of even greater significance.
And Hamilton is more concerned about the main trend ,so they tend to use them to determine the highs and lows .The weekly charts for today rapid fluctuations in the market may be too slow ,compromise is to use a 5daymoving average lines to the daily chart smoothing ,it still can keep on the main trend of the study .
After smoothing treatment plans are as follows ,such as red circle two point is just a day caused by the fluctuation of the beginning and the end of the bull market scenario :simple diagram ( HL indicated higher lows ,LH said lower highs ) average index between must be confirmed and Hamilton emphasizes ,to constitute a major trend trading signals, the Dow Jones Industrial Average Index and average index should be mutually Railway Confirmation.
In the above two index trend chart :1,two index in April reached a new high ( blue line ) .The main trend is bullish ,the mutual confirmation that the current bull market is still effective.
2,in July, DJIA innovates again tall ,but DJTA not ,mutual confirm was established ,this warning .But does not change the current trend. 3,in July 31st, DJTA fell a record low ,2 days later,DJIA also fell a record low.
This mutual recognition of a change in trend. 4,in October, DJIA out of a higher lows ,while the DJTA lows than the last low lower, mutual confirmation is not established ,it issued a warning ,but does not change the current trend.
5,DJIA then break before a high point ,in unilateral confirmed DJIA change in trend. 6,but it was not until early 11 ,DJTA just before the break is a high point ,at this time, DJIA is also making higher highs bear market bull market .
Had turned .Volume Rhea pointed out ,the trend of prices is the decisive factor .The volume to confirm the trends of strength and to judge the potential reversal which plays an important role.
Volume confirming the role Hamilton that when prices along main To trend direction, the volume should be increased. The bull market ,when the adjustment, the volume should be reduced, market participation should also be reduced.
Adjustment stage market trend should be boring, but fell wide degree should not be enlarged. In the bear market ,the volume should be in the fall when increased ,and rebound reduce rebound .
Extensive degree should not enlarge. By comparing these details ,the current main trend strength judgment .Volume and inverted Hamilton think high volume may be a harbinger of inversion.
A rally after the emergence of the high turnover may at the tips of trend will change or a second reactions will be the advent of sideways .Hamilton in his book mentioned several times in a sideways .
Horizontal sorting means a collection or distributed, but only in an upward or downward breakthrough to qualitative is collected or distributed. Hamilton will be finishing characterized as neutral ,until the breakthrough occurred .
Hamilton thinks ,in a breakthrough occurred before the breakthrough direction prediction is not suitable. Dow theoretical defect of " signal too late ;" ;blame this seems obvious enough.
Sometimes There is very intemperate comments ," ;Dow theory is an extremely reliable system ,because it is in every major trends in allows traders to miss top 1/3 stage and1/3stage,sometimes without any intermediate 1/3level.
" ;or simply gives a typical example :1942amajor bull market to industrial index of 92.92 andin 1946 212.5ended,a total of up 119.58 points,but a strict Dow theorists do not wait for the industrial index rose to 125.
88 isnot bought, must wait until the price dropped to 191.04 whenthrown, so the most profitable nor too little or no more than a total of 65half,and the typical example of irrefutable. But common to this objection answer is :" ;to find that a trader ,he in 92.
92 (or from that level within the first five points ) buy ,then in the round of the bull market has several years holds 100% positions ,culminating in the 212.50when sold,or from that level five points less than " ;,readers can try ;in fact ,he will find ,even difficult to find a hit, they do like Dow Theory as well as it includes hitherto .
So far over the past 60 years every bull market and bear all of the disaster ,a better answer is a detailed study of the last sixty years in the transaction record. We are lucky to have Charlie .
Mr. Dalton agrees with the calculation results replicated as follows. In theory, the calculation results can be shown such a situation .Pen only $100 investment in July 12, 1897 into a canal.
The Dow Jones industrial average stock ,at a time when the Dow Theory with a round of bull market ,the stock will be in ,and only when the Dow theory proof to confirm the main trends in a turn ,will not be sold or to buy.
The Dow Theory sixty years trading records the original investment of $100 to dateindustrial index price percentage growth proceeds to throw 84.72 May 3, 191021$312.6earningsto invest in October 5, 1910 81.
91 throwin January 14, 1913 84.96 3.7$324.17profitin April 9, 1915 65.02 out of86.12 August 28, 191732.5$429.53earningsto invest in May 13, 1918 82.16 out of99.96 February 3, 192021.7$522.74earningsto invest in February 6, 1922 83.
70 out of90.81 June 20, 19238.5of $567.17incomeagain input 93.80 December 7, 1923 October 23, 1929226.1throws305.85payoff of $1849.54inMay 24, 1933 84.29 out of164.39 September 7, 193795$3606.61profitto invest in 1938 June 23127.
41throwin March 31, 1939 136.42 7.2$3866.29profitin July 17, 1939 142.58 out ofMay 13, 1940 137.50 - 3.6$3727.10profitin February 1, 1943 125.83 out of191.04 August 27, 194651.9$5653.71earningsto invest in January 19,adidas JS WINGS 2.0 Uomo, 1954 288.
27 throwin January 10, 1956 468.70 for $62.6in189711236.65,invested $100 to 1956turned into$11236.65. As long as investors in the Dow theory announced a bull market begins to buy industrial stock index ,in the bear market comes out of it.
In this period, investors must do 15 time to buy,sell or 15 times,according to the change of index of every two years a time .This record is not be the pink of perfection .There is a transaction failures ,and three times the investment should be higher than the liquidation level.
But ,here, we almost do not need any defense .At the same time ,the record did not consider the Commission and tax Gold ,however ,did not include an investor in this period holding income dividends ;needless to say ,the latter will be on the increase in capital .
For those who believe in the " ;if buy good stocks ,then sleep " ;this principle beginners, controls the record ,in these fifty years ,he has only one chance to buy ,is in the industrial index to the lowest point,Click Here, also have only one chance to throw ownership ,2009 Media Group annual bloggers gathering Wang Ling units is equal to the murder,namely index is the highest point .
That is to say ,the lowest in August 10, 1896 29.64,a $100 investment to this period ,60 years later inApril 6, 1956 521.05 ,only added to 1757.93 yuan ,the and follow the rules of operation of the Dow 11236.
65 yuanfrom. The Dow theory is not wrong it is behoove ,its accuracy depends on the understanding and interpretation. But ,again,Adidas Jeremy Scott, the record speaks for itself. The Dow theory often investors doubtful sometimes this is possible ,but not always like this .
The Dow Theory to main trend problems will give a prediction ,and the prediction in the new main trend began in the short term is not clear and correct. Sometimes ,a Excellent Dow analysts will say: " ;main trend remains bullish, but already at risk ,so I don whether to recommend you buy now .
It might be too late ." ;however ,the objection is often reflect the critics itself is difficult to accept the " ;stock index contains all information and data in " ;the basic concept .
For " ;do what stock " ;this problem ,Dow theory principle is often associated with other ways of results is not consistent, so he on the Dow Theory doubt, without doubt ,the Dow theory tends to be more close to the fact .
This comment on the other hand also reflects an irritable psychology .The Dow Theory to " ;" ;stage may last for several weeks or months ( for example :linear formation stage) ,Friends must look at the boys have a girlfriend to tell whether well or not is really heavy...,active traders often instinctively against Dow Theory to make decisions ,but in the stock market and other situations, patience is a virtue of mm in fact ,if you want to avoid serious errors ,this is a must.
The Dow Theory on the interim help understood exactly. The Dow Theory for the medium-term trend change almost never given any signal .However ,If the selected stock purchase ,then the trader only from major trends can be lucrative .
Some traders in the Dow theory is summarized on the basis of some additional rules ,used in the middle stage ,but the results are unsatisfactory. This book the remaining chapters will focus on some good methods to solve it the problem .
Not the sale this index are correct ,the Dow theory is a technical way of indicating the main trend, this is crucial ,as we mentioned at the beginning of this chapter ,the majority of the stocks are in harmony with the main trend .
The Dow theory does not ,I can what the average stock .Concluded and Hamilton was designed to identify the main trend and seize the most market. They understand the market affected by emotion and inclined upwards or downwards over the road, so they will focus on the major trend identification and follow it.
The Dow theory help traders see the truth ,not imaginary .Investors and traders if the starting assumptions ,then the consequences will be more dangerous. Prediction market is very difficult game .
Hamilton readily acknowledges that the theory is not Will be wrong .The Dow theory has laid a cornerstone of technical analysis ,investors and traders need this as the starting point to develop suitable analysis system .