Category: Money tips Release Date: 2006-01-29
The principle of mutual authentication
1. Two kinds of indices must be mutual authentication - This is the principle of Tao's most controversial and most difficult parts of a unified, but he has suffered the test of time. Any careful study of the market, people will not ignore the record of this principle played a "role." While those in the actual operation of this principle will be left to their own traders census drawn to regret it. This means that the market trend is not a single index can be an effective signal.
The past, the railway index and industrial index mutual authentication, if the rail index rose to be a trend we can turn up a clear signal, however, is in such a process will not continue as a separate industrial average up, sooner or later to obstruct the railway index, opportunities still exist and, therefore, at best for this situation, we can only conclude that the direction of the main trends have not yet finalized.
2. "Trading volume follow the trend" - people talk about this, is always in a solemn tone, but the figure up and yet so difficult to understand, in fact, the oral forms of expression to mean that the main trends in prices, then the also active in trading activities followed. A bull market, when prices are rising trading volume increases. In a bear market, the price drops, when it rebounded, the trading volume also increased. Warehouse a small scale, this principle is also suitable for second-rate trend, particularly in a bear market trend in the secondary, when the transaction may be short-lived bounce to display an upward trend, or in short-term retracement to display a downward trend. But there are exceptions to this principle, but only on the basis of the transactions within a few days, or let alone a single transaction time is not enough, only a period of time all the required transactions only help us to make valid judgments, To elaborate further, the Dow Theory of market trends marked the conclusion of the final analysis of price movement generated. Trading volume are just some of the relevant information to help analyze a number of puzzling market conditions.
3. "Straight line" can be replaced by second-rate trends - Dow Theory terms, a straight line is one of these two kinds of index or lateral movement, as shown in the chart, as the lateral movement two to three weeks, sometimes even just a few months long, during this period, the price volatility of approximately 5% H or lower. The formation of a straight line shows the power of the general balance of buyers and sellers, of course, the end, or a price range that no one has been sold, the buyer bought only those who need to raise their bid to attract the seller, or sellers who are anxious to sell at a price found within the framework of the buyer, the seller had to reduce prices to attract. Thus, the prices have gone up over the existing "straight line" a sign of the ceiling is a rally, on the contrary, fall below the lower limit is marked. In general, during this period, the longer a straight line, price volatility, the smaller the range, it is the last breakthrough the greater the importance.
A straight line and so regularly that the followers of Dow Theory that their emergence is necessary, they may appear in a major bottom or top of the order to ship or Jiancang stage, respectively, but as the current major trends in the process of intermittent, which occur more frequently. In this case, a straight line to replace the general secondary waves. When an index to go through a typical second-class callback when the other indices may be formed on a straight line. It is worth mentioning that the movement away from a straight line either up or down, will the same direction followed by a more in-depth sports, not just follow the result of the new wave broke through the previous underlying trend movement restrictions resulting from the formation of "signal . " Before the occurrence of the actual breakthrough, and can not determine which direction the price will break through. For the "straight line" generally given 5% limit is entirely from experience; of these, there are some more substantial lateral movement, lateral movement of these boundaries because of its compact 10 clear they have been seen as a real straight line. (In further elaborated later in this book, we will find that Dow straight line in many respects appear in individual stocks chart a more stringent definition of a rectangular shape are very similar.)
4. Use only the closing price - Dow theory does not focus on any one trading day before the close of the peak and the lowest point of emergence, but only consider the closing price, that is one trading day closing price of the stock sold in the last period of time the average. We have already produced a chapter in the charts discussed in the closing price of the psychological importance, in this will not go into. This is another one gone through the test of time Dow principles.
Its role is as follows: Suppose an upward trend in the middle of basic trend of a peak at 11 am, at this time industrial average, say: Yes, 152.45; and then back down to 150.70 at close. Well before the half-day high of 152.45 on the negligible. If the next trading day closing price is higher than 150.70 Quotes will remain bullish. On the contrary, if the next one up phase so that prices were on a given day to reach a high point, such as 152.60, but prices are lower than the day to close at 150.70, then the bull market trend is sustained it is difficult to determine the.
In recent years, market researchers for an index above the previous limit (peak or the bottom of the figure) to mark (or confirmed or strengthening) of a sale of the scope of the trend, there are many perspectives. Road and Hamilton is clearly to the closing price of any breakthrough, even 0.01 are deemed as valid signs a breakthrough. Some analysts have begun to use the whole of modern point (1.00). We believe that the original point of view there is a most controversial historical record shows that the actual results, little or no evidence to support any of the above amendments.
5. Only when the reverse signal clearly demonstrated, it means the end of a trend - the principle that the principles may be better than the other Dow incurred criticism. However, if their understanding is correct, as we have set out some of the other principles, like, this principle is also established on the basis of physical inspection, nor indeed feasible. For the past Jizao of traders, is undoubtedly a warning, warning traders not to change its position too quickly and hit the muzzle on. Of course, this does not mean that when the trend changes have occurred when the signal would have to be an unnecessary delay, but rather describes an experience that those who prematurely buy (or sell) transactions compared with those who are always opportunities to be more patient traders standing on the side. They only have to wait until they have enough to take action only when sure. These opportunities can not be expressed in figures, such as 2 to 1 or 3 to 1; the fact that they are always changing.
Bull and bear markets do not go up forever, sooner or later fall to the lowest point, when a new basic trend of the first to be two kinds of changes in the indices shown, regardless of whether there are any callbacks or intermittent recently, the possibility of sustainable development are the greatest. But with the development of the basic trends in this round, which continues to become smaller and smaller the likelihood of extension. And therefore each successive re-confirmation of the bull market (an index of the new high point in another index to a new high point of the confirmation), all with less weight accordingly. When an extended bull market a few months later, bought the desire to buy new stock and can guarantee a profit selling the prospect of a bull market than the initial lower or less optimistic, the low but the Dow Theory 10th 2 points tells us: "hold your position, until the contrary directive."
A corollary of this point is that the trend of a reversal in this trend has been confirmed a place at any time. This does seem like the beginning so self-contradictory. It warned investors in Dow Theory, as long as he has at any point position, he should always concerned about the market though.
