Trading method using price action (About Dow Theory Part 3)
About Dow Theory Part 3
>>>Here is the previous article<<<
This time we will verify Dow Theory concepts using practical charts (^_^)/ Now, we will display the actual charts. <図１>
This chart is fully displayed, so let's try hiding the right side of the chart~！
<図２>
From here, focus only on the currently visible chart and think about Dow Theory.
This time, we will roughly check the peaks and valleys.
<図３>(Click to enlarge）
How to interpret waves varies from person to person, but we’ll interpret them roughly like this.
(This does not have to be exactly like this!!!)
So, currently, according to the Dow in Figure 3, we are inside the blue upward wave.
Assuming the price will rise until the blue support line is broken down, we do not consider selling.
In other words, we are aiming for buying on dips only.
No matter how the blue wave moves, we will think about buying only.
However, if by any chance the blue support line is broken, there is a yellow support line directly underneath, so
even if the blue support is broken, do not conclude immediately that the upward Dow is finished!
Because there is also a possibility of a green movement in Figure 4.
<図４>
However, if the yellow support is broken below,
the next support line is the red support line.
In this case, there is a reasonable distance, so it becomes a good setup for a pullback sell like the purple movement in Figure 4.
But right now there is no need to think about that sort of thing.
We are in an ascending Dow, so it is enough to consider buying on dips within the blue wave.
If you place the stop slightly below the blue support line, you can enter anywhere.
After that, a pink downward Dow occurred inside the blue upward wave, as shown.
<図５>
In the long term, you would aim to buy on dips within the blue upward wave,
but in the short term, you would aim to sell on rallies within the pink wave.
At this point it is unclear whether the pink wave or the blue wave will win.
Ultimately, a blue rising wave that breaks the nearby high and the pink resistance line appeared (orange upward wave) as shown in Figure 6.
<図６>
From here, as long as you do not break the orange support line, you should be in a buy bias,
and Dow will continue with a fairly high probability!
The chart after that is as shown in Figure 7.
<図７>
We will apply this thinking to all movements.
If the pink downward Dow occurs inside the blue upward wave once (Figure 5),
there was a risk of breaking below the blue or yellow support and turning Dow.
However, a Dow reversal becomes certain only after breaking below the yellow support.
So be mindful that selling in the scene of Figure 5 (pink downward wave) carries higher risk.
By the way, as mentioned in the previous report, before the orange upward move forms, it can be range-bound.
If you think the pink wave is strong, entering with a contrarian move at the pink resistance line is an option, but buying in a contrarian manner from the blue support line is more reliable.
Basically, the way to read charts is simple like this.
In an up Dow, only buys; in a down Dow, only sells.
To repeat, selling within the pink downward wave is a high-risk trade where you cannot determine up or down.
Whether to wait for the orange wave to form or wait for the purple movement in Figure 4
is the mindset needed to keep winning!
Please test it yourself× ![]()
