marym
Active member
Jean's Theory, also known as the Dow Theory, is a framework for analyzing the stock market and identifying trends. It was developed by Charles H. Dow, a financial journalist who co-founded Dow Jones & Company and created the Dow Jones Industrial Average.
While the theory was originally intended for analyzing the stock market, it can also be applied to forex trading. Here are the basic principles of Jean's Theory:
While the theory was originally intended for analyzing the stock market, it can also be applied to forex trading. Here are the basic principles of Jean's Theory:
- The market discounts everything: This means that all available information about a currency pair, including economic data, political events, and market sentiment, is already reflected in the price. Therefore, technical analysis can be used to analyze the market and identify trends.
- The market moves in trends: The market can be in an uptrend, a downtrend, or a sideways trend. Trends can be identified using technical analysis, such as chart patterns, moving averages, and trendlines.
- Trends have three phases: Trends have three phases - the accumulation phase, the public participation phase, and the distribution phase. During the accumulation phase, smart money (large institutional investors and hedge funds) begin buying a currency pair. During the public participation phase, retail traders and investors join in, driving the price up. During the distribution phase, smart money begins selling their positions, and the price begins to drop.
- Trends are confirmed by volume: Volume refers to the number of transactions that occur in the market. In an uptrend, volume should increase as the price rises, indicating that buyers are in control. In a downtrend, volume should increase as the price falls, indicating that sellers are in control.
- Trends persist until a signal indicates a reversal: A trend is assumed to continue until there is a signal that it is ending. This can be a break of a trendline, a chart pattern, or a moving average.