Dow Theory is concerned with determining the direction of the primary trend of the market, not the ultimate duration or size of the Trend. Once confirmed by both averages, the new trend is assumed to be in existence until an offsetting confirmation by both averages takes place.
Major Bull and Bear markets each have three distinct phases. Both the identification of these phases and the apearance of any divergence in the normal volume/price relationship offer useful indications that a reversal in the major trend is about to take place. Such supplementary evidence is particularly useful when the action of the price averages themselves is inconclusive.
12 years ago
