Page 22 - Module 4 - Trading_Ways_and_Means

Module 4 - Lesson 5 The destination and fundamentals of technical analysis

Technical analysis is being used for the prediction of market
movements (that is alterations in currencies prices, volumes and What is the Dow
open interests) outgoing from the information obtained for the past.
theory?
The main instruments of the technical analysis are different kinds of
charts, which represent currencies price change during a certain
time preceding exchange deals, as well as technical indicators. The Dow Theory (Dow Jones
latter are being obtained as a result of the mathematical processing Theory) is a trading approach
of averaged and other characteristics of price movements. The
instruments of the technical analysis are universal and applicable to developed by Charles Dow.
any Forex sector, any currency and any time span.
Dow Theory is the basis of
Technical analysis is easy to compute what is important while the technical analysis of financial
technical services are becoming increasingly sophisticated and
reasonably priced. They are available to all the Forex participants markets.
independent on their trade plans, strategies applied and the time of
position continuance. The basic idea of Dow Theory

Under contemporary conditions it is executed by means of is that market price action
computers, which is important if to account that means of the reflects all available
electronic support become more and more sophisticated. information and the market
price movement is comprised
1. The Dow Jones theory
of three main trends.
Dow Theory has been around for almost 100 years, yet even in
today's volatile and technology-driven markets, the basic
components of Dow Theory still remain valid. Developed by Charles
Dow, refined by William Hamilton and articulated by Robert Rhea,
Dow Theory addresses not only technical analysis and price action,
but also market philosophy.

Many of the ideas and comments put forth by Dow and Hamilton became axioms of Wall Street.
While there are those who may think that the market is different now, a read through Rhea's book,
The Dow Theory, will attest that the stock market behaves the same today as it did almost 100 years
ago.

Dow Theory at a high level describes market trends and how they typically behave. At a more
granular level, it provides signals that can be used to identify the primary market trend and/or
indicate a change in that trend.

The theory centres around identifying the trend for the Dow Jones Rail (now Transportation) Average
and the Dow Jones Industrial Average, and using volume to confirm those trends.

If both Dow Jones averages are trending in the same direction, then the entire market can be said to
be trending in that direction as well. Investors can use these signals to identify the primary market
trend, and then trade with that trend.

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