Classical Technical Analysis Using Forex Dow Theory

PROLOG

Developments in the investment world financial markets and derivatives in recent years increasingly widespread, both in stocks, bonds, stock index, commodity futures, and do not miss too in the forex market and others. Along with the development of investor and trader in this sector, growing methods and systems are used in an attempt to gain an advantage, both fundamental and technical. Among the many options that exist, on this occasion, I tried to brush up on Classical Technical Analysis Using the Dow Theory.

This discussion merely trying to reinvigorate one of the classical analysis techniques have been developed since more than a century ago, as well as an attempt to bring the choice of many options trading systems and techniques that exist, particularly for visitors indo forum MT5. My hope would be a benefit to us all.

Although the discussion on this trit mostly use the Dow theory, however, there will be some additions. The following topics bahasannya:

A. Brief of Dow Theory
2. Performance Dow Theory
3. Criticism of Dow Theory
4. Trend (trend) Price Movement
• a. Trend Movement Phase-Phase
b. Reflecting the movement of Everything Has Price
c. Inter-sector linkages Price Movements
5. Volume relationships and Trend
6. Analysis of peak and valley in the Trend
• a. Up Vs Trend Trend Down
b. Sustainability and Trend Reversal
c. Support and Resistant
d. Entry Entry Buy and Sell
e. Target Take Profit and Stop Loss
I'm sure many who visit here who have first to understand and apply the dow theory as analysis techniques in conducting trading, because it's storming and the correction you would add the benefit and good of this trit.


DOW THEORY OVERVIEW

Dow Theory Dow Theory is a theory or the basis of technical analysis which was first published by Charles H. Dow (1851-1902) at 255 Wall Street Journal, Dow was a journalist and editor of the Wall Street Jornal and the founder of Dow Jones and Company. The first study carried out by dividing the Dow stocks on Wall Street into two groups, namely trasportation Industrial Index and the Index. He said that the development of automated manufacturing industry will be followed by the development of the transport industry, since manufacturers need transportation to distribute the goods of production.

Departing from the assumption that if the gains in the transportation industry increased, indirectly also show that the production of manufacturing industry and increased demand from consumers as well, which in turn may encourage the growth of each company's earnings. Globally it can be used to measure the level of a country's economy.

After Dow's death there are some people who had a role in developing the Dow Theory is based on the text written by Dow in the Wall Street Journal, they include, William P. Hamilton, Robert Rhea and E. George Schaefer.

Basic Dow Theory
A. The market has three movements
2. Trends have three phases
3. The stock market has absorbed the (discounted) all news
4. Average stock market will have to confirm each other
5. Trend should be confirmed by volume
6. Trend is assumed to apply to give a definite signal

The points above are used as the basis in the science of Technical analysis. These rules are proposed by Dow and later refined by his successors.

DOW THEORY OF PERFORMANCE

Several studies have shown that the Technical Analysis can be used as one method to build a portfolio using market timing. Simple research conducted by Norman Fosbeck shows that "market timing" is better in generating profits than Buy & Hold. The simple problem is that we need to really master the technique.

In maanagementfile.com, Arman Manullang Boy tells the story of his success to invest in the stock market by relying trend analysis of the Dow theory as follows: "A friend of mine in college used to purchase shares of PT Bumi Resources Tbk (Bumi) when the price sank to the level USD 400. Then he sold the shares at the price of Rp EARTH 3000 at sometime in September 2009. One type of shares held is increased to 650% within less than a year. Amazing is not it? And just rely on a simple analysis and a little courage to EARTH into shares when selling pressure is very great. rest, he just wait until you see the signal reversal occurs. "

Here are the results of research conducted Norman fosbeck of the year 1964-1984

Other research conducted by conducted by Jacquiline Doherty (The Truth About Timing)
and published in Barrons (November 5.2001)

And research by Martin Pring using the Dow Theory

- By investing $ 44 in 1977 and followed all the buy and sell signals of the Dow theory, it is in 198 result in a gain of $ 18,000

-Meanwhile, if you invest $ 44 and hold portfolio, then in 1981 only $ 960 profit.
DOW THEORY OF KRTIK

Dow Theory is not free from criticism, as a theory there are disadvantages that accompany the benefits. Criticisms of Dow Theory that should not be overlooked is that in every market movement is trending, on average when using this technique we have been up nearly 20% of the market's movement. Indeed, in some recent cases have developed a method of optimization in order to reduce the lag movement. One was done by minimizing the time frame.

In the subsequent development of Dow's theory began to emerge the Elliot Wave Theory is divided into three parts, namely the trend wave 1.3, and 5 Elliot Wave tried mengeleminir weaknesses of the Dow Theory. In addition to successful use of this theory is to know our own investment horizon. If our target is for a rather long time, we can see the major trends that occurred in these stocks. But if we are daily targets, a trend we have seen is a short swing. Sure it takes consistency and patience as well wait until the trend is to give a clear direction.