THE HAnDbook of TEcHnIcAl AnAlysIs
and 10 we see volume declining whenever there is a correction or retracement in
the GLD ETF, which is bullish. This all fits in perfectly with the assumption that
GLD was in a primary bull market between 2006 and 2010 and is an extremely
bullish indication for GLD. GLD subsequently went north to over $180 per share.
Only Closing prices are recognized
In Dow Theory, only closing prices are recognized. This means that regardless
of how large the high and low price excursions may be on any one day, only
the final closing price will be used. Furthermore, it does not matter how min-
iscule the amount that price closes above or below the previous day’s closing
price.
2.3 Challenges to Dow Theory
There are many criticisms of Dow Theory. Here are some of the more significant
arguments against it:
- Dow Theory is more applicable to the equity markets: Detractors of Dow
Theory argue that the theory is unsuitable for application in faster moving
markets or across lower timeframes. For example, a commodity trader would
have to wait for months and maybe even years for a buy or sell signal based
on the penetration of a previous peak or trough in the primary bull or bear
trend. Hedgers would have few or no counterparties to take the other side of
fIgure 2.26 Volume Expanding in the Direction of the Existing Primary Bull Trend
in GLD SPDR Gold Trust Shares.
Courtesy of Stockcharts.com
