Basis on which the technical analysis is based – Dow theory – Lesson 8

In this section we will review traditional techniques and some modern ones on the analysis of the price and of certain assets. It is not a manual of technical analysis but of a particular vision among many others.

In the price, any foreseeable situation that could affect it is discounted. The Prices are moved by trends that can be:

  • Bulls
  • Bears
  • Lateral

We will always have detractors of this type of method, but the truth is that fact it works, but of course it is under some parameters.

The classic war between technicians and fundamentals is quite absurd because the best of all is a combination of both.

Over time after talking to thousands of operators in one branch as in the other the same conclusion is reached, the chicken or the egg did not come before. You must have in account that the fundamental is very valid and the technician also and that both they feed back All the professional trading tables of banks and brokers use both that not a single detail escapes.

In our opinion the technician serves to determine levels and the fundamental to determine direction. Whenever there are key levels, a macro event usually occurs that makes that level is tested and that increases volatility.

Both the macro data and the interventions of the ministers of economy and finance they do is speed up the price, it is very interesting to see and appreciate the violence of the price before a situation of tension or panic.

It is evident that right now we are in the world upside down where the good news They do not have much bullish impact but the opposite and vice versa.

The markets are changing every day with their correlations and specific details of ranges, for example. Therefore, we must be prepared to use both methods even eccentric analysts who take the opposite to the whole world because all the Visions are few for survival in the market.

First of all, it will be to study the classical theories to see how they approach the Classical analysts and things taking into account the era in which they were written.

We will go far enough to not extend much in reading that each You can do from your computer.

It is absolutely necessary that the classic authors be read because they won very regularly with half of the half of the means that US. I have always said that any trading or investment book more than 50 years ago It is recommended reading.

Charles Dow and his partner Mr. Jones at the beginning of the 20th century, unveiled a series of basic rules through the publication of articles to better understand the markets. Much of what we know today as technical analysis has its origins in the theories proposed by Dow.

Dow’s theory is based on basic rules that assume the stone angle of the study of technical analysis. Whether people like it or not, Charles and Murphy laid the groundwork for the later development of what we now know.

They have been geniuses who have dedicated themselves to a lot of patience to the study and operation of the market with no little precision. We do not go to enter very thoroughly, but we will only expose their basic rules so that they have in mind:

The moving average medias discount everything. The market has three trends>

  • Primary or main
  • Secondary
  • Minor (day to day trend)

The main trends have three phases>

  • Accumulation phase
  • Public participation phase
  • Distribution phase

Means should be confirmed between them, the volume should confirm the trend and the trend is presumed to be in effect until it signals definitive that it has regressed.

The rules seem simple and certain operators will take away merit, but from each of these points have been written thousands of books and have your motivation. The most common for new operators and experts is to have read this book at the beginning of their wanderings by the markets, but it is almost more useful to read it once an operator has already entered more than 1,000 orders to the market and already knows what it is to suffer, enjoy and agonize sitting in a chair.

Do not miss our Learning Forex: Lesson 6

Forex managed accountsBasis on which the technical analysis is based – Dow theory – Lesson 8

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