What are the disadvantages and advantages of Dow theory?

Some readers may find the content of Dow's theory complicated, while others will pay more attention to its shortcomings in practical application and raise many objections. Therefore, before talking about more charts, we'd better use some words to illustrate this point. The following is Bian Xiao's information about the shortcomings and advantages of Dow Theory. I hope you like it. )

First of all, let's take a look at the "second guess" that writers often use when talking about Dow theory, which is a kind of accusation that Dow theorists often produce.

Even the most experienced and careful Dow theoretical analyst thinks that it is necessary to change his point of view when a series of market behaviors cannot support his speculative position. They don't deny this, but they think that in a long-term trend, the losses caused by this temporary measure are very small. Many Dow theorists express their opinions regularly, which helps traders to make reference before and after trading. If you record it and pay attention to it, you will find that the explanations given at that time were all made by Dow analysts recognized at that time, so there are inevitably some defects.

1. The accusation of "the signal is too late" Some people commented that "Dow theory is an extremely reliable system, because it makes traders miss the first three stages and the last three stages in every megatrend, and sometimes there are even no intermediate three stages.

Or simply give a typical example: a big bull market in the United States started with an industrial index of 92 of 1942 and ended with industrial indexes of 1946 and 2 12.5. The total * * * rose by 1 19.58 points, but a strict Dow theorist did not wait until the industrial index rose to 65438+. It must wait until the price falls to 19 1.04, so the profit is at most 65 points or less than half of the total. This typical example is indisputable.

But the usual answer to this objection is: "Find a trader who buys at 92.92 (or within 5 points of this level) for the first time, then holds a position of 100% in the whole bull market for several years, and finally sells at 2 12.50 (or within 5 points of this level)". In fact, we will find the Dow theory.

Because it includes all the disasters of every bull market and bear market so far, a better answer is to study the past trading records in detail. Theoretically, this calculation shows that a stock with only $65,438+000 was invested in the Dow Jones Industrial Index on1July 65,438+08, 1997, just like a bull market in Dow Theory, these stocks will be sold or bought again only when one of the main trends confirmed by Dow Theory turns. In short, the investment of 100 has changed from 1897 to 1 1236.6.

Investors only need to buy industrial index stocks when Dow theory announces the beginning of a bull market and throw them out when a bear market comes. During this period, investors should buy 15 times, sell 15 times or trade once every two years according to the index changes. This record is not perfect. There was a trading error, and three reinvestments should have been made at a higher level than the above liquidation. At the same time, this record does not consider commissions and taxes, but it does not include dividends received by an investor during this period; Needless to say, the latter will add a lot of color to the funds.

For a novice who believes in the principle of "just buy stocks and then go to sleep", according to the above records, during these 50 years, he has only one chance to buy, and even when the industrial index reaches the lowest point, he only has one chance to sell his own stocks, that is, the highest point of the index. That is to say,165438+ 10 in August 1996 reached the lowest point of 29.64, and the investment of $ 100 reached the highest point in this period, that is, 60 years later,1April 6, 1956195438.

2. The confusion brought by Dow Theory to investors. Dow theory often confuses investors, but it is not always the case. Dow's theory always gives a prediction of the trend of major trends, and this prediction may not be clear and correct in the short term when new major trends begin.

For the question of "what kind of stock to make", the principle of Dow theory is often inconsistent with the results obtained by other channels, so some investors have doubts about Dow theory. But there is no doubt that Dow's theory is often closer to the truth. Sometimes, a good Dow analyst will say, "The main trend is still bullish, but it is in a dangerous stage. I don't know whether to advise you to buy now." It may be too late now. However, the above objections often only reflect that critics themselves find it difficult to accept the basic concept that stock indexes contain relevant information and data.

On the other hand, this comment also reflects an impatience. Stages that cannot be explained by Dow's theory may last for weeks or months (such as straight line formation stage). Active traders often instinctively make decisions contrary to Dow's theory, but in the stock market, as in other cases, patience is also a virtue. In fact, it is necessary to avoid serious mistakes.

3. Dow's theory is of little help in the medium term. Dow's theory will hardly give any signal about the transition of the medium-term trend. However, if you choose the right stock purchase, then traders can only benefit from the main trends. Some traders summed up some additional rules according to Dow theory and applied them in the medium term, but the effect was not satisfactory.

4. Indices cannot be bought or sold. It is very important that Dow theory only points out the main trends in technology. As we mentioned earlier, the trend of most stocks is consistent with the main trend. Dow theory can't and can't tell you what stocks to buy. This is also one of the problems we will elaborate later.

The Practical Essence of Dow's Theory

After careful transformation, Dow theory will play a great role in practical research and operation. Mainly reflected in the following three aspects:

1) Take advantage of the trend of stock price movement.

Combining the fluctuation classification of Dow theory with the definition of trend, the objective definition standard of bull and bear market is given, and the overall outline of the iron war treasure map is constructed. Take the direction of the 30-week stock price moving average as the definition, fluctuation level and trend judgment standard of bulls and bears. The subjective and quantitative problems of Dow theory have been solved and overcome. The trend thought of Dow's theory can directly lead to the important investment profit principle of taking advantage of the trend. At the same time, it is precisely because of its unparalleled importance and great power of practical operation that most investors are confused and mistakenly think that investment activities are just taking advantage of the trend and forget that investment activities are for profit and hedging.

In fact, the crux of the problem is that following the trend is only an important way to make money and investment ideas, but it is definitely not the only way and investment ideas. The fundamental purpose of investment is to make profits and avoid risks, as long as the methods and ideas to make profits and avoid risks are correct. Following the trend is not the purpose of investment. Under the premise of satisfying the general pursuit of profit and avoiding risks, it is a basic skill that professional investors must have to transform investment ideas into actual combat methods and tactics.

2) Grasp the stock price deviation.

Combining the secondary reverse wave with the gravitational effect of the average market cost on the stock price, we can draw the principle of eccentric regression centripetal force to avoid and use the secondary reverse wave to avoid risks and make profits. When applying this principle of Dow, if we can well combine the principle of spatial proportion of stock price of Eliot and Gann's theory with the principle of motion cycle time window of Gann's theory, the actual combat power of tactical investment operating system will be even greater. See the actual breakdown of the guide map for details.

The core of the deviation principle is that the average cost of the market has a great restriction on the development of stock prices. The deviation between cost and stock price represents the degree of market profit and loss. It is also a prerequisite for some investors to make profits and avoid risks. When the market deviates to a certain extent, certain investors will cash in profits or start stop-loss hedging. (cost control principle)

3) Avoid the trap of stock price trend

With the mutual verification principle of Dow's theory, in actual combat, we can verify the * * * vibration effect with multiple periods and factors, and we can avoid many huge traps in the stock market. For details, please refer to Tiewei analysis and judgment system and Tiewei actual combat operating system.

Real practical investors must firmly remember that the fundamental purpose of investment activities and behaviors is to make profits and avoid risks, and to achieve this fundamental goal, not only systematic analysis and judgment are needed, but more importantly, practical operating systems are needed.

Only with this practical operational tactical system can we successfully transform the correct investment concept into truly brilliant investment results. Moreover, when various theoretical systems of analysis and judgment are unable to grasp the market trend, we can also make up for and resolve it with a strict and accurate investment operation system. In all kinds of investment activities, we can truly achieve the superb position of both profit and risk avoidance. It is also very dangerous for actual investors if they only remember the profit and don't avoid the risk.

At the same time, it is impossible for actual investors to just remember to avoid risks without practical methods and systems to resolve real risks. This will inevitably make hedging an empty talk and fail to achieve practical results. People often have to be prepared to deal with and control many helpless situations in order to be invincible forever, or even if there are few failures, they will succeed greatly. In other words, a good investment system should not only capture good market profit opportunities, but also resolve the security risks of investment funds brought about by the uncertainty of stock price movement.

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