Raghee hornerpresentationtf2019
- 1. Dow Theory Decoded: How a 140 year old market analysis is the key to successfully trading any market today. With Raghee Horner
- 2. “It was in the late 1890s that a few market students, led by Charles H. Dow, discovered that the stock market had a “trend,”that the great body of stocks moved more or less in unison,regardless of the price fluctuations in individual stocks. This “trend” action led to the development of a “trend theory” and ultimately to the Dow Theory.” - R. Rhea It started with something we all now take for granted. 2
- 3. The Three Phases of Dow Theory 3 Trends A series of higher highs and higher lows. The higher highs get the broad attention while the higher lows are the support or “backbone” of the trend. Distribution Not just sideways price action but wide and somewhat unpredictable highs and lows. Most often at the end of an uptrend as one group of buyers sells to the next and late group of buyers. Accumulation Narrow sideways action. Narrow can be defined by volatility or average true range which is the historical price movement range. This type of chop can precede momentum breakouts.
- 4. Understanding trends are the foundation of Dow Theory. 4
- 5. The market is not just up and down trends... 5
- 6. Another type of sideways markets... 6
- 7. Narrow sideways action is very different from “chop”. 7
- 8. Identify the current market trend. Anything less is guessing at the appropriate strategy and indicator. The first step of each trade setup... 8
- 9. “...that the stock market as a whole had an underlying trend, distinct from the daily fluctuations of individual stocks, led to the use of the Dow Jones averages.” - R. Rhea Dow created the averages. 9
- 10. Focusing on groups of stocks that move together or affect one another was the early foundation of Dow Theory. We still use this today beyond Dow Industrials and the Dow Transportation averages. Trending markets are the basis for every trader and investor 10
- 11. “Keep an eye on the transports.” It’s one of the oldest sayings in the market. Dow believed that railroads, truckers and airlines were forward-looking indicators on the economy. Transportation and Industrials 11
- 12. Volume is another way of viewing opinion and participation at a price level and not for the entire day. Volume should increase in the direction of the trend. 12
- 13. Volume confirms price and trend. 13
- 14. Using volume can be tricky. There are limitations to end of day volume that doesn’t show participation at specific price. There are newer and better ways to view participation at specific price levels now, and I’ll share that with you shortly. New technology for the 1880’s principle of volume 14
- 15. Industrial and Transportation Averages must confirm each other. 15
- 16. Dow Theory believes that the market discounts all news. That means Dow believes price reflects what the market knows or expects. This also explains why surprises are reacted to so dramatically. Dow Theory does not ignore news.. 16
- 17. A trend will continue, until it doesn’t... 17
- 18. But how do you know the difference between noise and the end? 18
- 19. 1. Markets have three basic movements. 2. Markets have three basic phases: Accumulation, Trend, Distribution. 3. Markets discount all news. 4. The Dow Jones Industrial Average and the Dow Jones Transportation Average must confirm one another. 5. Volume confirms price and trends. 6. Trends tend to continue. Decoding Dow 19
- 20. Use GRaB Candles to decode the movement and phases. 20
- 21. Know the calendar to decode events. 21
- 22. Use GRaB Candles to compare the DJT and INDU 22
- 23. How do we see volume at specific price levels versus a period of time? Volume Weighted Average Price or “VWAP” (pronounce “vee-wapp” like an iPhone “app”) Volume Weighted Average Price 23
- 24. Notice the the VWAP line (cyan) showing support before the sudden increase in volume. Dow would’ve loved VWAP. Use Volume Weighted Average Price to confirm price/trend 24
- 25. Continuation in Pepsi (PEP) using Dow-influenced tools 25