Basis of market analysis _ Dow theory_part 1
Before you jump to learn technical analysis you should know Dow theory. Why?
Because this theory is the basic foundation of all market analysis. this is propose more than 100 yr ago and still relevant. Can not say will it remain relevant in coming era of algo trading. But it still seems distant future and right now there is plenty room to make money based on this theory in trading. But as far as I see in investing world this will remain intact as this theory explain most natural & logical points.
I m not written this article instead of copy past from other source. Also cut short article to points.
The Market Discounts Everything
The idea that the market discounts everything is not new to technical traders, as this is a major premise of many of the tools used in this field of study. Accordingly, in technical analysis one need only look at price movements, and not at other factors such as the balance sheet.
Like mainstream technical analysis, Dow theory is mainly focused on price. However, the two differ in that Dow theory is concerned with the movements of the broad markets, rather than specific securities.
to be continues..................
Because this theory is the basic foundation of all market analysis. this is propose more than 100 yr ago and still relevant. Can not say will it remain relevant in coming era of algo trading. But it still seems distant future and right now there is plenty room to make money based on this theory in trading. But as far as I see in investing world this will remain intact as this theory explain most natural & logical points.
I m not written this article instead of copy past from other source. Also cut short article to points.
The Market Discounts Everything
The first basic premise of Dow theory suggests that all information - past, current and even future - is discounted into the markets and reflected in the prices of stocks and indexes.
That information includes everything from the emotions of investors to inflation and interest-rate data, along with pending earnings announcements to be made by companies after the close. Based on this tenet, the only information excluded is that which is unknowable, such as a massive earthquake. But even then the risks of such an event are priced into the market.
The idea that the market discounts everything is not new to technical traders, as this is a major premise of many of the tools used in this field of study. Accordingly, in technical analysis one need only look at price movements, and not at other factors such as the balance sheet.
Like mainstream technical analysis, Dow theory is mainly focused on price. However, the two differ in that Dow theory is concerned with the movements of the broad markets, rather than specific securities.
to be continues..................
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