How Can I Use Dow Theory To Predict Crypto Prices?

American Stock Market and the First Price Movement Model

  • DJIA — Dow Jones Industrial Average, which included America’s largest manufacturing companies, and
  • DJTA — Dow Jones Transportation Average that comprised the list of the biggest U.S. transportation, shipping, and railroad enterprises.

Does a Stock Price Theory Work in the Crypto Market?

Dow Theory Tenets

1. There are 3 types of market movements based on their duration

  • The main movement is the longest one and lasts for at least 1 year. Any investor or trader should orient their portfolio towards this trend: as long as they go in line, the investments bring maximum profits.
  • Medium swings last at least 10 days, but no longer than 3 months. The direction of this movement is the opposite from the main movement and can retrace from 33% to 66% of its price gain.
  • Short swings last between several hours and 2–3 weeks. They are directed opposite from the medium swings.

2. A trend comprises 3 phases

  • Accumulation. This is where the trend starts: the prices are low as set by the preceding bearish movement. At this stage, experienced investors understand that the asset is undervalued and purchase it.
  • Public participation. After the seasoned market players, here come regular investors that see clear signs of the growing market movement. This strengthens the trend, but the traders who joined here will gain less than the early birds.
  • Distribution. Savvy investors from the Accumulation phase realize that the end of the trend is coming, and this makes them sell their positions. Their exodus pushes the trend to reverse.

3. Asset prices reflect news events

4. Indices must confirm each other

5. Trading volume must confirm market movements

6. The trend should continue if no signs prove otherwise

Dow Theory Tenets in Trading

Final Word



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