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The Dow Theory
The theory stats that when both moving averages dip below previous important lows, it’s regarded as an indicator of a downward trend
Trading in the financial markets intends the ability to forecast the movement of the price. To understand the movement of price you need to determine the possibility of trends changing. During the trade development they formulated many theories. Those were for monitoring the current situation and emerging changes which can influence the reversal of the further up or downwards. To predict the market successfully traders can use multiple methods for Forex chart analysis. All of were to have a profitable trading. Dow Theory is a leading method for financial markets which I will elaborate on the theory here with its proper using of Dow Theory in Forex trading.
What does Dow Theory mean?
Dow Theory is a theory that applies to the price movement of a financial market, this theory provides a basis for technical analysis, and it is a reference for traders as well as for most technical analysts who consider being a simple way to define the trend of a market. This is a concept of trend analysis that was created by Charles Dow in the 1900′s & this concept is considered one of the foundations of technical analysis.
Dow Theory is mainly used by traders in the Forex market, its principles can help traders understand how a market moves and help to identify the market trend by signaling profitable trading opportunities. Dow Theory is easy to learn and can be applied by anyone without the argument, it is one of the most important theories; it distinguishes three types of trend.
Determination of the Market Trend
This is a most important trend following theories ever.The identification of trends according to Dow theory is therefore based on the study of the successive peaks and troughs. According to the Dow Theory, the trend is set to study the peaks and successively formed during the recess. In this concept of an uptrend, each new “higher” should be higher than the last, and each new “lower” should be higher than the last. In a downtrend, each new “lower” must be lower than the previous one, and each new “higher” must be lower than the last.
