Dow Theory

 

 

Manipulation

The first assumption is: The manipulation of the primary trend is not possible. When large amounts of money are at stake, the temptation to manipulate is bound to be present. Hamilton did not argue against the possibility that speculators, specialists or anyone else involved in the markets could manipulate the prices. He qualified his assumption by asserting that it was not possible to manipulate the primary trend. Intraday, day-to-day and possibly even secondary movements could be prone to manipulation. These short movements, from a few hours to a few weeks, could be subject to manipulation by large institutions, speculators, breaking news or rumors. Today, Hamilton would likely add message boards and day-traders to this list.

Hamilton went on to say that individual shares could be manipulated. Examples of manipulation usually end the same way: the security runs up and then falls back and continues the primary trend.

While these shares were manipulated over the short term, the long-term trends prevailed after about a month. Hamilton also pointed out that even if individual shares were being manipulated, it would be virtually impossible to manipulate the market as a whole. The market was simply too big for this to occur.

Technical Analysis for Short-Term Traders

The principal difference between Day Trading and other forms of trading is the time frame

Technical analysis assumes that prices move in trends

Trends have a tendency to perpetuate

In technical analysis we are dealing in probabilities, never certainties

Outside bars are reversal patterns that indicate a change in sentiment

Inside bars indicate that prevailing momentum has dissipated because buyers and sellers are now equally matched

The key reversal bar should be accompanied by climactic volume

A very strong signal of a reversal in sentiment

Characteristics

1.      Price opens the bar strongly in the direction of the prevailing trend

2.      Trading range of the bar is extremely wide

3.      Price should close at or close to the previous close

Characteristics of Exhaustion Bars

1.      A wide trading range following a sharp price move

2.      The close is higher than the opening in a downtrend or the opening is lower than the close in an up trend

3.      The close is more than half way up the bar in a down trend, and more than half way down in an up trend

4.      Pinocchio bars give us a false impression of what is really going on

Martin J. Pring

Accumulation/Distribulation Line

Trading Rules

1)      The best trading signals are given by divergences between A/D and prices.

2)      Just as important, A/D Line breaks out new high or low before prices.

3)      When you go long or short, following a divergence between A/D and price, remember that even market professionals can go wrong. Use stops and protect yourself.

Gap Rule

If there is a gap, and it is going to reverse, it will do so 10 to 15 minutes after the opening 95 percent of the time. If the market continues in the direction of the gap after 10 to 15 minutes, it is a strong sign that the move will continue for the rest of the day, closing in that direction as well. Even if the market reverses after 10 to 15 minute period, if it fails to fill the gap, odds are that the market will close in the direction of the gap. This also applies to stocks and other commodities.

When you have a gap above or below a trend line, it indicates an important change (news and/or fundamental) and points to a change of trend. This rule can be used only in conjunction with another confirming principle.

                                                   
                                                                                                ------Victor Sperandeo

Whipsaw

People don't use stops for three reasons: ignorance, wanting to hang on to hope, and the trouble with whipsaws.
A whipsaw means that you buy a stock, set a stop underneath, the stock declines and hits it, you exit with a loss, only to see your stock reverse and rally just as you originally expected. After several whipsaws many folks give up using stops. But trading without stops is a receipe for a disater because sooner or later, one of your 'stopless' stocks will get caught in a major downdraft and deliver a 'shark bite' to your account.

                                                                  -------Dr. Alexander Elder

There are no certainties in the markets, only probabilities

2018/11/16

There are no certainties in the markets, only probabilities. Even a reliable pattern, may fail occasionally.

Market forecasting is a matter of probability, the risk of being wrong is always present.

Many people make the mistake of thinking that market is truly predictable. Nonsense, trading in the markets is an odds game, and the object is to always keep the odds in your favor.

The way to build wealth is to preserve capital, make consistent profits, and wait for the right opportunity to make extraordinary gains.

High-flying stocks

2018/10/4

Stocks with no assets or earnings can fly on hot air. A value trader who feels he is missing those spectacular moves has a choice. 1. He can stick to his method, soberly saying, “Can’t catch them all”. 2. Or he may decide, “When living with the wolves, howl like a wolf” and start buying upside breakouts. If you do that, the only asset separating you from the manic crowd is your risk control – your stops and money management.

   -----Dr. Alexander Elder