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    The Markets Discount Everything

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    Andrianarivelo Mihoby Safidy 1820352
    The document discusses key principles of Dow Theory, which states that stock prices already reflect all known information, and that markets trend in primary, secondary, and minor trends with bull markets proceeding through accumulation, a big move, and excess phases and bear markets having distribution, big move, and despair/panic phases. It also notes that for a trend to be established, indices must confirm each other's movements, volume must support the price trend, and a trend persists until a reversal is confirmed.

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    The Markets Discount Everything

    Uploaded by

    Andrianarivelo Mihoby Safidy 1820352
    10 views2 pages
    The document discusses key principles of Dow Theory, which states that stock prices already reflect all known information, and that markets trend in primary, secondary, and minor trends with bull markets proceeding through accumulation, a big move, and excess phases and bear markets having distribution, big move, and despair/panic phases. It also notes that for a trend to be established, indices must confirm each other's movements, volume must support the price trend, and a trend persists until a reversal is confirmed.

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    DOW

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    Dow

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    The document discusses key principles of Dow Theory, which states that stock prices already reflect all known information, and that markets trend in primary, secondary, and minor trends with bull markets proceeding through accumulation, a big move, and excess phases and bear markets having distribution, big move, and despair/panic phases. It also notes that for a trend to be established, indices must confirm each other's movements, volume must support the price trend, and a trend persists until a reversal is confirmed.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    10 views2 pages

    The Markets Discount Everything

    Uploaded by

    Andrianarivelo Mihoby Safidy 1820352
    The document discusses key principles of Dow Theory, which states that stock prices already reflect all known information, and that markets trend in primary, secondary, and minor trends with bull markets proceeding through accumulation, a big move, and excess phases and bear markets having distribution, big move, and despair/panic phases. It also notes that for a trend to be established, indices must confirm each other's movements, volume must support the price trend, and a trend persists until a reversal is confirmed.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    1.

    The markets discount everything

    Above statement states the obvious fact that everything there is to know about the
    markets is already reflected on the stock price. Based on this first principle, the
    price always reflects everything there is to know including expectations on the
    outcome of any future event such as interest rates decision or a stock’s earnings
    etc.

    Everything including news, facts, data, emotions, and expectations are discounted
    in price. Everyone (including the fundamental analyst) ponders over each piece of
    information to make only one decision: to buy or to sell. This single decision
    affects price and volume.

    Based on this principle, the only information excluded is that which is


    unknowable, such as a massive earthquake& natural calamities.

    2. The markets have three trends

    Dow postulated that the market trends can be classified into three trends.

    1. Primary Trend
    2. Secondary Trend
    3. Minor Trend

    3. The market trends have three phases

    Dow Theory suggests the markets are made up of three distinct phases, which are
    self repeating.

    Phases of primary trend in bull market


    1. Phase1 - Accumulation
    2. Phase 2 - Big Move
    3. Phase 3 – Excess

    Phases of primary trend in bear market


    1. Phase 1 - Distribution
    2. Phase 2 - Big Move
    3. Phase 3 – Despair/Panic

    4.Indices must confirm each other

    In order for a trend to be established, Dow postulated, indices or market averages


    must confirm each other. Dow used the two US indices, the Dow Jones Industrial
    Average (DJIA) and the Dow Jones Transportation Average (DJTA), however for
    Indian market; we consider the most important 2 indices Nifty and Bank Nifty.

    5. Volume Must Confirm the Trend


    The volumes must confirm along with price. The trend should be supported by
    volume. In an uptrend the volume must increase as the price rises and should
    reduce as the price falls.

    6. A trend is said to be continuous until a reversal is confirmed


    According to this principle, Dow states that trend is actually one continuous
    movement and that unless there is some external force acted upon, the trend will
    not change. If the market is rising, it will more likely continue to rise. If the market
    is falling, it will more likely continue to fall. If the market is not going anywhere, it
    will more likely continue to stay within a range.

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