For most investors, the Dow Theory is justan extra tool in their toolbox.It lookstoo simple to bethe consideredthe maintool. Furthermore, sinceit looksso simple,everyone believes thata cursoryreading of themain tenetsof DowTheory makes themexperts and, inthis fashion, theystart topontificate about theDow Theory.
Thus, many expertsmake twoerrors whenapplying the DowTheory:
a) On the onehand, they useDow Theoryjust asa “complement.”For them, the Dow Theory isnot thereference point uponwhich their investmentdecisions should bebased.
b) On the otherhand, such “complementary”use of the Dow Theory is made causally lacking the necessary expertisewhich leads toerrors of judgment.
However, the DowTheory doesn’t lenditself tobe amere “complementary” tool inthe toolbox.It isthe maintool in thetoolbox when properlyunderstood and applied.At leastfor meother technical studiesare justa complementarytool.
Furthermore, theDow Theorylooks deceptively simple. Youcan readall itshypotheses and axioms in less than halfan hour.After such briefstudy, one feels that the implementation of Dow Theory is a piece of cake. Wrong!It isnot assimple as that.If you really wantto learnthe DowTheory gohere for the reading list.
It isscarcely surprisingthat many badmouththe Dow Theory. Theyuse a handicapped version thereof, and they use it outof context.
There aren’t easy shortcuts whenit comesto mastering the Dow Theory.The diligentinvestor has tosweat it out.At least,this is whatI’ve been doingfor thelast 12 yearsand counting.The rewardis great:You willbe ableto seeorder among confusion.You willhave a compass that will guide you through the rollercoaster of themarkets.
You will be able long-term to outperform the market by ca. 3% a year while avoiding devastating drawdowns. You will learn the difficult art of letting profits run and cutting losses short.
Thus, if you browse throughthe web, you will find that almost everyoneis claimingthat we arein aprimary bear market.Everyone is warningof doubletops (which, bythe way,were to bedisregarded according toDow Theorymaster Rhea),that the transportsare notconfirming;they look at divergencesbut in the wrongtime frame, etc.Well, these arehalf truths, buthalf truthsare moredangerous than outright lies.And, when itcomes to investing,half truthscan be devastating to your portfolio (as missing the ca. 7.37 % move the S&Phas undergonesince thesignaling of thecurrent primary bullmarket onJune 29, 2012).
Sincerely,
The DowTheorist
