Do you know how a trend is defined? Is it a trend line connecting highs and lows or a moving average which is defining a trend? The answer is: No. The person who first defined a trend was called Charles Dow. The analysis method called nowadays “Technical Analysis“ has its foundation in theories first introduced by a certain Charles Dow around one hundred years ago. His studies were primarily on the US stock market but his findings became relevant for every modern technical analyst and technically oriented trader. Dow believed in the idea that the price value of an equity index discounts everything. All factors which determine supply and demand for stocks are reflected in the price. That makes fundamental analysis irrelevant. Think about it – How many times have you seen a retracement in a stock beginning a few days before a negative corporate news was published…Dow believed that everything is discounted in the current price of a stock. Furthermore he stated that the market has three different trend periods. A primary (long term) trend, a secondary (medium term) and a subordinated trend (short term). An uptrend is defined by the fact that every relative high is higher than the previous relative high. Accordingly every relative low has to be higher than the previous relative low. The below chart of USD/CAD illustrates this pattern of higher highs and higher lows in an uptrend which fulfills the criteria of Charles Dow. A trend remains in place until this pattern of higher highs and higher lows is broken. While there might be a countertrend reaction the overall trend remains intact. Dow called countertrend reactions “market noise” (temporary moves against the dominating trend). Signals generated by the Dow Jones Index and the Dow Transportation index have to confirm each other. The transportation index contains major railroad stocks, shipping companies, and air line stocks. If any of the two indices fails to make a new high this would be considered as a so called “bearish divergence”. This is secondary for you as a forex trader but you should keep in mind, that Charles Dow was the first person who defined a “trend” by objective measures of higher highs and higher lows. Join the Forex Competition today and test which trading strategy suits you the best!