Trade method using price action! (About Dow Theory Part 2)
Trade methods using price action!
? About Dow Theory Part 2
Here's the previous article
This is the second article on Dow Theory. We will look at trading examples using Dow Theory as mentioned previously. First, among Figures 2, 3, and 4, which one is the easiest to trade?
〈Figure 2〉
〈Figure 3〉
〈Figure 4〉
Among these three, most people would conclude that Figure 2 is the easiest to trade (^^)/
This is easy; the idea is to place a stop below point ① and enter with a buy order because you are aiming for a pullback buy.〈Figure 5〉The target is basically up to the most recent high.
Next is the trading method for Figure 3: this time place a stop just above the most recent high and enter with a sell order.This could be a Dow Reversal, and if that happens you can gain a large profit, but the minimum profit target is up to the most recent low.
〈Figure 6〉By the way, the recent (last week) pound-yen chart decline resulted from a Dow Reversal in Figure 6, leading to yen appreciation.
In the case of Figure 4, you cannot trade immediately. At present the direction is unclear.〈Figure 4〉If the price breaks below the most recent low of ①, wait for a pullback and then sell. In this case, the same logic as Figure 6 applies.
<図７>
Next, if in the short term the Dow declines and the most recent high is breached and the Dow rises again, the Dow continues to rise while a decline in Dow is broken, so you aim to buy on pullbacks.
※Long-term is in a rising Dow. In such a scenario, a short-term Dow drop occurs and then breaks.
〈Figure 8〉
However, in Figure 4 there is a possibility to move in either direction, so it could be a range between the high and low shown by the arrows. Statistically speaking, the best approach here is to try counter-trend, and if a breakout occurs, follow the direction of the breakout.
〈Figure 9〉In this way you can determine direction using Dow Theory, and by placing a stop at the point where the direction changes, you can trade in the direction dictated by Dow. Some of you may think, why bother now! Please review this rule once more.× ![]()
