I remember it was a summer afternoon, and I was still in high school. During lunch, I happened to see a crowd of people gathered around a table, sharing a meal. Out of curiosity, I approached them to try to understand what they were discussing. It turned out they were talking about "stock trading." Their discussion quickly focused on the stock Sichuan Changhong (600839). That year, there was flooding; it was an event from 1999, but it planted a crazy seed in my heart. I also began to dabble in the stock market, buying some stocks, reading newspapers daily, and studying various reports and performance statements. This became a new hobby for me, who was not fond of studying.
Over time, my understanding of the stock market has deepened, and I have encountered some basic knowledge of stocks. For new investors entering the market, there are usually two options: one is to start with small trades, and the other is to observe the market first and practice with virtual trading. I was fortunate to meet two mentors, one proficient in Gann theory and the other skilled in wave theory. They both come from practical experience, but I prefer my third mentor, who is approachable and eager to share knowledge and skills with both the elderly and novices. He is from Shenyang and has a profound understanding of Dow theory, able to clearly explain every principle of Charles Dow, leaving a lasting impression. To this day, I am still reviewing the Dow theory he taught.
Charles Dow's Theory (Dow Theory), proposed by American journalist Charles Dow, is the cornerstone of market technical analysis. It predicts stock market movements by analyzing the correlation between the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA), and summarizes six fundamental rules.
In the stock market, the three core theories can be summarized as:
1. **Three Assumptions of Dow Theory**:
- Market behavior includes and absorbs everything: Market prices reflect all known information.
- Market behavior runs according to trends: Prices will move along certain trends.
- History Repeats Itself: Market behavior as observed in history will repeat in the future.
2. **Three Trends of Dow Theory**:
- Long-term trend: The main trend lasting from several months to years, which is most important for investors.
- Medium-term trend: A secondary trend lasting from several weeks to a few months, which may align with or oppose the long-term trend direction.
- Short-term trend: A small trend lasting from several days to a few weeks, the hardest to predict and easily manipulated.
3. **Three Basic Laws of the Stock Market**:
- Stock prices first reflect expectations: Stock prices reflect the market's expectations of a company's future performance, not its current performance.
- Short-term price fluctuations are determined by capital inflows and outflows: Short-term price fluctuations are greatly influenced by capital movements.
- Trend Law (Follow the Trend): Trends have a certain continuity, with larger trends determining the direction of smaller trends.
These theories and laws provide investors with a foundational framework for market analysis, helping them understand market behavior and predict stock price trends. Although Dow theory has a history of over a century, it laid the groundwork for modern financial market technical analysis. Both Elliott Wave theory and other technical analysis methods can be traced back to Dow theory. It is still widely used in various financial markets such as stocks, foreign exchange, and futures, gaining broad recognition from market investors.
In the process of understanding Dow theory, everyone has their unique insights. Many economists propose hypotheses first and then conduct research. In this realm of the unknown that is the stock market, we need to equip our eyes, nose, ears, and limbs; otherwise, even the blind, deaf, mute, or lame might succeed more than you. Choose the right mentor and pay attention to them, and you will not lose your way.
In the later stages, there will be public accounts launched, continuing to pay attention, answering questions, and welcoming discussions to grow together, leaving our mark in the crypto space.
