As we discussed Dow ideas or Tenets yesterday which are pillars, but one more crucial rule of Dow was to consider or give most importance to closing price, irrespective of time frame of chart. He believed averages most close above or below previous low or high to confirm the trend.  So always consider closing price to trigger your analysis

Some criticisms of Dow theory

  • Believed to give reversals late, almost 20-25% after the high or low
  • Generally, buy or sell confirmation occurs in second phase of trend and so its believed to be a laggard

Still to confine this criticisms, Dow theory has captured 68% of the moves in S&P between 1920-1975.  And dow actually wanted to give overall idea of the long term trend through his theory so he never intended initiate trading calls.

 

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