Introduction

The theory of Dow is to the foundations of all the technical analysis. The fundamental principles on which it is based were exposed from Charles H. Dow, (famous especially in binomial with Jones, for the creation of the Dow-Jones index), in an article series between 1900 and 1902 and subsequently resumed from William P. Hamilton and Robert Rhea, than it reorganized them in the shape that today is known.

It compared the courses of Market to the tides.
Like, in fact the progressive accentuation or the progressive weakening of successive big waves reveals a phase of high tide or one of low tide, therefore an index of Stock Exchange or the price of a Stock, translate in diagram, rispecchia a cycle to the rise when the successive fluctuations touch stung always greater and, viceversa, rispecchia a cycle to the decrease when the successive fluctuations touch always smaller levels.
This conception represents the base of the Technical Analysis and encloses in itself, in its extreme semplicità, the germ of all the evolutions that are succedute till now.

Dow evidences two basic concepts:

1. It is possible to find the existence of one tendency through the observation of one succession of peaks and sinkings increasing (tendency to the rise) or decreasing (tendency to the decrease).

2. There is an uncoupling of the study of the prices from the examination of the economic, social factors, acclimatizes them, etc that affect their formation.

This last aspect, in particular, characterizes the Technical Analysis on the base of the principle that the prices discount all: not only the economic aspects of bottom, but also hopes, fears, humors, ration them and irrazionali, of the buyers and the vendors; all factors that, normally, are thought inquantificabili but that, instead, alter systematically and meaningfully the theoretical value of a quoted good.

Elements of base of the Technical Analysis

We will see hour on which elements is in concrete terms based the Technical analysis in the study of a any good financial.

 

Trend

Trend or the tendency is the direction along which the diagram of the quotations the Stock moves analyzed it.
Normally the movement introduces a series of oscillations that can render this direction of march little obvious if the interpretative rules are not defined before.
If the course of a diagram of along period observes itself, we say more years, can be found, inside of a tendency of principle very defined, the existence of reduced temporal windows during which the movement is developed in opposite direction that main one; if it is still come down in greater detail they can observe ulterior movements in controtendenza regarding those previous ones; and therefore via.

All this means that the location of a tendency cannot prescind from the preventive definition of the temporal arc of observation: that that, as an example, it can appear like a tendency to the decrease of short period, if watched in a more general picture, will probably reveal like one simple temporary correction of one tendency to the rise longer period.

  

Trendline

Once established which it must be the observation within, one technical is adopted generally much simple one for the evidenziazione of the tendency to find: more points than minimal relative in case of relative ascending movement or more points than maximum in case of descendent movement join with one straight. These straight ones take the name of tendency lines or trendlines.

Naturally, once traced the trendline, it can happen that the movement, also maintaining the same direction, emphasizes angle-shot meaningfully accelerating. It is to the sensibility of the analyst the decision on the opportunity to maintain the old trendline or to trace of one new. On this subject it goes said that our eye has one exceptional resolutive ability… 

Normally, less than tendencies of smaller period regarding that one under observation are not wanted to be found, provvederà to trace one new single trendline if the new oscillations approximately introduce the same amplitude of those previous ones; in contrary case within will be opportune to consider them as smaller movements trend a more wide one.

A diagram that vìola or, as more commonly is said, perforates the trendline marks it an exhaustion of the trend in action Therefore, a trend it is considered exausted if the diagram comes down under the level of the trendline in the event of ascending movement or knows them over the level of the trendline in the event of descendent movement.
    

Channels

It is often used to trace a parallel to the trendline being made to pass it in order at least a maximum point if the trendline is ascending or a minimum point if the trendline is descendant.
It is obtained, therefore, a channel whose interpretativa logic is identical to that one of the trendlines.
The channel gives, in more, the vision of the amplitude of the oscillations and, therefore, the possibility to estimate the thickness of the market. Wider channels, in fact, derive from a greater thickness of the market and usually are reported longer to temporal periods; therefore, just because mainly it consolidates to you, they reflect greater probabilities of persistence of the trend.
Narrow Viceversa, particularly steep channels, species if, turn out enough fragile and little reliable.

From which we can assert that the duration of a trend stretches directly to being proporziona them to its amplitude.

The inclination of a trend, instead, stretches inversely to being proporziona them to its amplitude.

    

Sideway

The quoted value can happen, naturally, that of which trace the course snodi, between ups and downs, in lateral direction. The insufficient directionality takes the name, in such case, of sideway or movement of congestion, but the exposed concepts remain equally valid over.