Chapter 8: Market Trends

Trends demonstrate the overall direction in which the market is moving. According to Dow Theory, there are three distinct phases for major trends. They are:

Accumulation
Public participation
Public distribution

The accumulation phase is the first portion of the trend. It is during this phase that those traders who are well-informed either buy or sell. This means that those traders who are well-informed will recognize that a downtrend is about to end and will buy as a result or in some cases, vice versa.

During the public participation phase is when the largest groups typically follow a major trend. This usually takes place as prices begin to rise rapidly. There may also be news that will support this trend.

In the final distribution, there will often be news that is favorable regarding the trend. You may see an increase in speculative volume. At this time, the public participation will increase even more. During this phase you will also usually see those investors that were well-informed and who bought when the market was high will begin to sell.

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1 comment

#1IraisJuly 31, 2011, 2:13 pm

Always a good job right here. Keep rollnig on through.

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