TradeCityPro Academy | Dow Theory Part 3👋 Welcome to TradeCityPro Channel!
Welcome to the Educational Content Section of Our Channel Technical Analysis Training
We aim to produce educational content in playlist format that will teach you technical analysis from A to Z. We will cover topics such as risk and capital management, Dow Theory, support and resistance, trends, market cycles, and more. These lessons are based on our experiences and the book The Handbook of Technical Analysis.
🎨 What is Technical Analysis?
Technical Analysis (TA) is a method used to predict price movements in financial markets by analyzing past data, especially price and trading volume. This approach is based on the idea that historical price patterns tend to repeat and can help traders identify profitable opportunities.
🔹 Why is Technical Analysis Important?
Technical analysis helps traders and investors predict future price movements based on past price action. Its importance comes from several key benefits:
Faster Decision-Making: No need to analyze financial reports or complex news—just focus on price patterns and trading volume.
Better Risk Management: Tools like support & resistance, indicators, and chart patterns help traders find the best entry and exit points.
Applicable to All Markets: Technical analysis can be used in Forex, stocks, cryptocurrencies, commodities, and even real estate.
In the previous session, we explained Principles 3 and 4 of the Dow Theory. Be sure to review and study them, and if you have any questions, let us know in the comments.
📑 Principles of Dow Theory
1 - The Averages Discount Everything (Not applicable to crypto)
2 - The Market Has Three Trends
3 - Trends Have Three Phases
4 - Trend Continues Until a Reversal is Confirmed
5 - The Averages Must Confirm Each Other
6 - Volume Confirms the Trend
📈 Principle 5: Trends Persist Until a Clear Reversal Signal Appears
Full Explanation:
Dow Theory says that once a market picks a direction—like going up (bullish trend) or down (bearish trend)—it keeps moving that way until something big and obvious says, “Nope, we’re turning around!” Think of it like momentum: the market’s lazy and sticks to its path unless it gets a solid reason to switch.
What’s a Trend? It’s the market’s overall direction. Uptrend means higher highs and higher lows (prices keep climbing). Downtrend means lower highs and lower lows (prices keep dropping). Sideways means it’s stuck in a range.
What’s a Reversal Signal? In an uptrend, if prices stop making new highs and start forming lower highs and lows, plus break a key level (like support), that’s a sign the trend’s flipping. In a downtrend, it’s the opposite—higher highs and lows plus breaking resistance mean it’s turning up.
Why Does This Happen? Markets reflect crowd behavior. When everyone’s buying or selling, the trend builds steam and doesn’t stop until the crowd’s mood shifts big-time.
Key Point: Small dips or spikes don’t count. A little drop in an uptrend? Normal. You need a clear pattern or a big break to call it a reversal.
Practical Use: Traders use this to avoid panic-selling on tiny moves and wait for strong signals before jumping ship.
Simple Example:
It’s like riding a bike downhill—you keep rolling fast until you hit a wall or slam the brakes.
📊 Principle 6: Trends Must Be Confirmed by Volume
Full Explanation:
This principle says a trend isn’t legit unless trading volume backs it up. Volume is how much is being bought or sold. If the trend’s real, volume should match it—high volume means lots of people are in on it, low volume means it might be fake or weak.
Uptrend: Prices rising with growing volume? That’s a strong bull run—buyers are all in. Prices up but volume’s tiny? Could be a fluke or manipulation.
Downtrend: Prices falling with big volume? Sellers mean business—bear trend’s solid. Falling prices with low volume? Might just be a quick dip, not a real crash.
How Volume Confirms: It’s like a lie detector for trends. Big volume says, “This move’s for real!” Low volume says, “Eh, don’t trust it yet.”
Extra Detail: In an uptrend, if volume starts dropping, it’s a warning—buyers might be losing steam. In a downtrend, low volume could mean sellers are running out of ammo, hinting at a bounce.
Why It Matters? Dow believed volume shows the market’s true energy. No crowd, no power—simple as that.
Practical Use: Traders check tools like OBV (On-Balance Volume) or volume bars. If a stock jumps but volume’s dead, they might skip it it’s a trap.
Simple Example:
It’s like a party if tons of people show up dancing, it’s a real vibe. If just two guys are there, it’s probably lame.
🎉 Conclusion
We’ve reached the end of today’s educational segment! We’ll start by explaining all of Dow Theory’s principles, and in the future, we’ll move on to chart analysis and the strategy I personally use for trading with Dow Theory. So, make sure you fully grasp these concepts first so we can progress together in this learning journey!
💡 Final Thoughts for Today
This is the end of this part, and I must say we have a long journey ahead. We will continually strive to produce better content every day, steering clear of sensationalized content that promises unrealistic profits, and instead, focusing on the proper learning path of technical analysis.
⚠️ Please remember that these lessons represent our personal view of the market and should not be considered financial advice for investment.
