I wrote the full post on medium recently. https://medium.com/insiderfinance/dow-theory-simplified-19e8da687806

You might be learning to trade. You might have been learning and trying for some time?

You would have possibly heard the term “Smart Money Concepts” a little deeper dive and you would hear claims such as this guy, or that guy invented it. Let me tell you, the markets have been doing their thing a lot longer than these fake guru clowns.

Back in 2021 I posted on TradingView, a post to do with Dow Theory. See below;

Dow, as in Charles H. Dow. Co-founder of the Dow Jones & Company and the Wall Street Journal. He came up with a theory that simply summarised how the market works. I would go as far as to call him the Grandfather of technical analysis.

Here’s a quick overview;

1. Market Averages Discount Everything: Asset prices reflect all available information, including investor expectations and macroeconomic factors.

2. Market Trends Have Three Phases:

➀ Accumulation Phase: Informed investors begin buying or selling, moving against the prevailing trend.

➁ Public Participation Phase: The wider public notices changes, leading to increased price movements in the trend’s direction.

➂ Distribution Phase: Informed investors begin to sell or buy back their positions, transitioning to a new trend.

1. Markets Trends Exist: Markets can be in one of three trends — uptrend, downtrend, or sideways trend — each having its own characteristics and duration.

2. Averages Must Confirm: Dow Theory traditionally looks at the Dow Jones Industrial Average and the Dow Jones Transportation Average. For a trend to be confirmed, both averages should move in the same direction.

3. Volume Confirms Trends: Volume should increase in the direction of the primary trend, as it indicates the strength behind the price movement.

4. Trends Continue Until Clear Reversal: A trend is assumed to be in effect until there’s conclusive evidence, usually by volume and price action analysis, indicating it has reversed.

Over the years, I have explained how tools such as Elliott Waves and Wyckoff Schematics fit into this 6 step approach above. Including the use of this image.

https://preview.redd.it/j1sreetxtxtd1.png?width=1287&format=png&auto=webp&s=63093b570abe5c8a2bf64efe3071f44d521d4078

Smart Money Concepts (smc) some will attribute to ICT or other fake gurus that lay claim to the techniques.

The market simply ebbs and flows in search of liquidity.

If you were to overlap volume profiles you will see where volume drops off, gaps are formed, where volume increases. It is simple to understand, that price was accepted by both buyers and sellers — hence price going sideways and consolidating.

Obviously, there is a little more to it than this, but the majority of the concepts I have covered in both my books.

Once you can visualise why the price is seeking it’s next pocket of liquidity, the whole trading game becomes an awful lot easier.

I covered a simple formation of a strategy in this post:

Along with a live example of the same strategy on YouTube:

https://youtu.be/HMBr6hWVIgo?si=aVkE5P1ItxDmKyE7

The power of a 3 trend concept, makes smart money concepts, Elliott waves, Wyckoff and several other theories — all make sense.

forex #smc #trading