🎓 Advanced · Foundation
Basics of Dow theory
The foundation of modern technical analysis. Markets move in three trends (primary, secondary, minor); the trend continues until confirmed reversal. Use higher-highs/higher-lows structure to define trends.
Setup
- Chart: daily/weekly candles — no indicators required, only structure
- Identify the primary trend: sequence of higher-highs (HH) and higher-lows (HL) = uptrend; LH + LL = downtrend
- Identify secondary correction: interruption of the primary trend that eventually resumes
- Cross-confirm across correlated indices (Nifty + Bank Nifty; Sensex + BSE Midcap) — divergence weakens the signal
Entry
Long: after a secondary correction ends and price prints a new HL, enter on the resumption of the primary uptrend. Confirmation = break above the last HH.
Exit
Exit when Dow structure breaks — an LL prints in an uptrend (or an HH in a downtrend). This is Dow's reversal signal.
Stop-loss
Below the most recent HL (long) or above the most recent LH (short). If broken, structure has failed.
When it works
- Clean weekly-timeframe trends with well-defined pivots
- Cross-index confirmation is present (both Nifty and Bank Nifty in the same trend)
- Patience — Dow trades are inherently multi-week to multi-month
When it fails
- Sideways markets where HH/HL structure is ambiguous
- Divergence between indices — one making HH, the other making LH
- Trying to apply Dow to intraday charts (theory is fundamentally weekly/daily)
General trading rules that apply
Regardless of the specific setup, these apply to every strategy on this site:
- Never risk more than 2% of your account on a single trade
- Place a hard stop-loss before entering — no exceptions
- Journal every trade: setup, reason, outcome, one lesson
- After two consecutive losses, stop for the session
- Backtest and paper-trade for a month before deploying real capital
Every strategy here is part of our in-house catalogue, written and calibrated for Indian markets. Past behavior does not guarantee future results. Charts run against 2-year Nifty data — actual results in your account will vary. Backtest, paper-trade, and size responsibly before risking real capital.