Technical Analysis: Dow Theory, Elliott Waves, and Chan Theory
Summary
This overview introduces three assumptions commonly associated with technical analysis: market activity is reflected in prices, prices tend to move in trends, and historical patterns may recur. It also frames volume, price, time, and range as core elements that underpin different analytical methods, offering moving averages, Bollinger Bands, and wave analysis as examples of approaches focused on different combinations of those elements.
The article summarizes Dow Theory’s primary, secondary, and short-term trends, including its view that volume can help confirm the direction of a major trend. It outlines Elliott Wave Theory’s five-wave advance followed by a three-wave correction. Chan Theory is described through concepts such as market structure, fractals, segments, consolidation zones, and divergence, with emphasis on scale and rhythm. These are explanatory summaries and personal recommendations, not comparative tests or evidence of predictive performance. The author’s claims about personal trading success and historical forecasts are anecdotal; the article also cautions that investing carries risk.
Key ideas
- The article presents price incorporation, trending behavior, and historical recurrence as foundational assumptions of technical analysis.
- It identifies volume, price, time, and range as elements used across technical methods.
- Dow Theory classifies trends by duration and treats volume as supporting evidence for trend direction.
- Elliott Wave Theory describes advances as five waves and corrections as three waves.
- Chan Theory is summarized through structural concepts, with emphasis on market scale and trading rhythm.
- The article offers no systematic evidence that these theories predict returns reliably.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.