If you are new to the world of cryptocurrencies trading, you need to learn as much as you can to be successful in this fast moving market. This post will be explaining about one of the theories you need to know, the Dow’s theory. Dow’s theory 6 tenets will teach you how you can use them to understand crypto trading signals for better investment decisions.
1. The 3 types of market trends
Primary trend is the major trend which most important one to determine. This primary could also affect the market movement in secondary trend. This shows the main direction in which the market is moving. The primary trend may last from 1 year to for as long as 3 years.
Secondary or intermediate trend is what happens to the primary one and it is a self-correcting mechanism. Unlike primary trend, secondary moves in the opposite direction as correction of primary trend. The duration of this trend could last from a couple of days to several months
Short swings, also known as minor movement is the last type of trend. This trend occurs as a result of some news or temporary opinion. It can last from a couple of hours to a month. A good example will be when China banned Bitcoin trading. The price of Bitcoin fell down to $3,300 temporarily.
2. The 3 phases to trends
Accumulation phase is the phase when investors can analyze and predict the future and what is happening. This allows investors to buy currency at low prices. Bitcoin investors accumulating this currency could be the example.
Public participation Phase is when the general public starts investing and participates with the hopes of making quick profit. This causes the price of coin to rise.
Distribution Phase is the phase when people that have accumulated coins during previous phases start selling it to make profit. Although this phase is yet to come in Bitcoin but there are many investors who got bitcoin at ridiculously low price and then distributed a small section of it when the price hit major resistance.
3. The news and information about cryptocurrencies reflects the price variations of that coin. Therefore, technical analysis can be used to easily cover the information gap. Crypto price charts are very useful in doing that analysis.
4. Market averages could be indicator of information about each other. This means that if the market average reflects opposite trend with particular coin, then you could say there’s hardly any trend.
5. Trends are always follows up with volume. When a coin is going through an upward trend, then the buying volume are increasing. On the other hand, an increase in sales volume is a sign of downward trend.
6. A trend cannot change until there is an unequivocal signal indicating reversal. For example, when a bull market is proceeding, the average of graph will exist comparatively high. The low must go below the current low in order for the trend to shift. However, when a trend is bearish, the average of graph will exist comparatively low. For the trend to shift, there must be some movement to shift the low higher.