Dow Theory Trend Change Illustration.

Be warned, it may be boring but very useful once the concept behind the theory is clearly understood.

Is the major trend still intact, if Dow Theory is applied to the current monthly XAO chart ? Answer is illustrated on the chart. Change we now have is only applicable to intermediate term trend within the chart as we have a valid support break giving us a NON FAILURE SWING intermediate term trend reversal and a warning. It should help us to identify where an important change in secondary movements occur and how to read these within the context of the primary trend. It teaches us to compare these secondary movements with the earlier similar secondary moves. By doing this, It teaches us to identify the change once on hand.

We will apply this to All Ords Monthly in real time where we have a NON FAILURE SWING Dow Theory trend reversal on hand. See schematic below. Can we also see how late the signals received are ? It is therefore not intended for

dowtheoryillustrated

Dow Theory clearly states that a trend has three parts : 1) Primary ( similar to Tide which lasts from 4 years to 6 years ). 2)Within this primary trend, we have secondary movements(waves). These( secondary movements) are corrections that run against the primary trend. 3) Followed by minor trend (ripples).

Also important to know that there are three phases in primary trends. I will only touch base to the major uptrend development and it’s phases : Accumulation ( Reviving confidence) where smart money is busy with their accumulation.Public participation phase or improved earnings phase (technical buying usually occur at or during this period) followed by distribution phase or rampant speculation where smart money is busy again but off loading their holdings this time around.

Back to the topic and to demonstrate the current NON FAILURE SWING REVERSAL with the monthly. Follow the peaks and troughs since 2016 low and identify the change.

Chart is courtesy of StockCharts.com

xaomonthly15122018

Why bother with all these ? It will add an extra dimension to our technical knowledge. It will show us how a trend reversal may be defined/identified in 2nd time frame(medium/intermediate terms) using the mighty Dow Theory on any given chart ( hourly or a monthly chart or other).Therefore we may learn how to recognise a trend reversal in 2nd time frame or above on any given chart and take that as a warning of some sort. It is not impossible but good luck I say if you try and apply this to a minute chart !

During the time I have studied TA, NON FAILURE SWING was not an accepted reversal in our CFTe course notes. Some of the followers of the theory see it as a valid reversal some don’t. Why ? I don’t know to be frank. I personally learnt to take it as an important warning/change if and when on hand.

I hope you have enjoyed this post and wishing all friends and readers a safe and wonderful festive season.

Cheers.

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