Dow Theory 2.0Euro/US DollarFX:EURUSDMayfair_VenturesI have written a lot about Dow over the years. I recently wrote an article explaining the same theme in a modern format. Here's a little detail; Dow Theory has 6 core principles: The market discounts everything (price reflects all available information). The market has three movements: primary (trend), secondary (corrections), and minor (daily noise). Primary trends have three phases: accumulation, public participation, and distribution. The averages must confirm each other to validate a trend. Volume must confirm the trend (rising volume with the trend, weak volume on corrections). A trend remains in effect until clear reversal signals appear (trend persists until proven otherwise). You could wrap everything from oscillating indicators through to advanced Wyckoff techniques into these principles. But in simple terms, you could also make them more mechanical and throw out some of the noise. The first principle can simply translate to - discount the news, price for anyone in the know is already showing what the news is likely to say. Or in other terms, it has little effect on larger timeframes. ---------------------------- 2nd principle; And this is why Dow Theory still matters — today we read price like a river, not a single thermometer. If we use Dow’s core ideas with multi-timeframe price action, liquidity, and order-flow thinking. Let's use the ocean as an analogy: Primary trend = the tide, secondary swings = waves, intraday moves = ripples. Don’t fight the tide. Super simple to visualise. I have covered the whole principle before. -------------------------------------- The third principle; This has also been covered in several posts; Wyckoff had the accumulation mark up and distribution phases. This is only understanding liquidity as a process. Buyers buy, price goes up. sellers step in and price goes down. Inside of the move, you get the public jumping on the bandwagon. This is the noise phase. What we can see without needing to use Wyckoff or go into a lot of technical depth is this; This is simply the internal trend changing. Why would it change? well the EXTERNAL price took out a new high and this is as simple as a pullback. What retail see as a change of trend on the smaller timeframes, large institutional players who follow higher timeframes are seeing opportunities to buy - to align with the primary trend. ------------------------------------------------- The fourth principle; The averages mist confirm; this one is less use in mechanical terms today. Also the instruments will vary, what Dow meant by this principle has more to do with both the Industrial and Transportation averages to make new highs (or lows). If one average makes a new high but the other does not (a divergence), the trend may be weak or false and shouldn’t be trusted until both confirm. --------------------------------------------------- The Fifth; Volume must rise with the move. Well, in modern techniques where we search for prominent liquidity. You would be assessing the "why" behind a move. So lets assume we see a sweep on an internal structure to the downside and our primary structure is Bullish. Then you would expect an increase in volume on the green candle. (I've covered candle theory) in other posts here. This sweep created a fresh high. The story is obvious there, we know where momentum is at. ---------------------------------------------------- Finally, Principle six; The trend is your friend until the end. Once the higher timeframe move takes external liquidity. the internal will facilitate a pullback. Which is not to be confused with the higher timeframe change of trend. Again, several posts here on @TradingView I have written over the years. Including this one: ============================================= I often say, "people don't want simple" they assume there's a magic formula, a silver bullet. But, once you see how simple the moves can be. You have a pretty good advantage in the market. Take it easy! Disclaimer This idea does not constitute as financial advice. It is for educational purposes only, our principal trader has over 25 years' experience in stocks, ETF's, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.