Dow Theory Market Structure [Levels]
Theory and User Guide for "Dow Theory Market Structure [Levels]" Indicator
Theoretical Background
The indicator applies the core principles of Dow Theory in a modern context, suitable for any market (stocks, indices, crypto, forex). Developed by Charles Dow in the late 19th century, Dow Theory is the foundation of trend analysis. Its key tenets implemented in the indicator are:
1. Trend Defined by Successive Peaks and Troughs
Bullish Uptrend โ each new high is higher than the previous one (Higher High, HH), and each new low is higher than the previous (Higher Low, HL).
Bearish Downtrend โ each new high is lower (Lower High, LH), and each new low is lower (Lower Low, LL).
A violation of this structure signals a potential trend reversal.
2. Support and Resistance Levels
Previous significant highs and lows become future support (former highs after breakout) and resistance (former lows after breakout). The indicator automatically draws horizontal lines from each confirmed pivot and extends them until price closes beyond the level.
3. Volume Confirmation
Volume should expand in the direction of the primary trend and contract during corrections. The indicator uses directional volume:
In an uptrend, average volume on upโbars (close > open) must exceed average volume on downโbars.
In a downtrend, downโbar volume must exceed upโbar volume.
4. InterโMarket Confirmation
Two key indices (e.g., Industrials and Transports) must confirm each other. The indicator allows selecting a confirming asset (an index or correlated instrument). The trend is considered confirmed when the confirming assetโs trend direction matches the main chart.
5. BOS (Break of Structure) and CHoCH (Change of Character)
Modern interpretation of Dowโs reversal signals:
BOS โ continuation of the current trend when an extreme is renewed in its direction.
CHoCH โ first reversal signal when price breaks the last opposing extreme (e.g., a new high after a series of lower highs). For strict Dow compliance, the indicator offers Strict Dow CHoCH: the signal appears only when both index and volume confirmations are satisfied (if active).
User Guide
Purpose
Visualize Dow market structure, autoโplot key levels, determine the current trend, and generate continuation/reversal signals with optional strict confirmation.
Main Chart Elements
HH / HL / LH / LL Labels at each confirmed pivot.
Horizontal Levels โ lines drawn from HH (resistance), HL (support), LH (resistance), LL (support). Levels are automatically deleted when price closes beyond them (or on a wick touch, depending on settings).
ZigZag Lines connecting consecutive highs and lows.
BOS โฒ / BOS โผ Labels โ trend continuation.
CHoCH โฒ / CHoCH โผ Labels โ potential reversal.
Info Panel (bottomโright) โ shows current trend, number of active levels, index and volume confirmation status.
Settings
Organized into functional groups:
โ๏ธ Main Parameters
Swing Length (bars) โ number of bars left/right to confirm an extreme. Smaller values give microโstructure; larger values capture the main trend.
๐ Levels (Horizontal Lines)
Customize visibility, color, line style, width, and break conditions (close vs. wick).
Limit the maximum number of displayed levels per type.
ใฐ๏ธ ZigZag
Color and thickness for up and down segments.
๐ท๏ธ HH/HL/LH/LL Labels
Size, color of labels and text.
๐ BOS / CHoCH
Toggle BOS/CHoCH display, colors, label size.
๐ Confirmation (Dow Theory)
Use Confirming Asset โ enable interโmarket confirmation.
Confirming Asset Symbol โ ticker of the confirming instrument.
Confirming Swing Length โ swing period for the confirming asset.
Confirming Asset Timeframe โ timeframe (empty = current).
Volume Confirms Trend โ enable directional volume check.
Volume Lookback Period โ averaging period for volume.
Strict Dow CHoCH (require confirmations) โ when on, a CHoCH appears only if the index trend matches and volume supports the new direction (when those confirmations are active).
Signal Interpretation
Trend Identification:
Check the info panel (ยซTrend: โฒ Bullish Uptrendยป or ยซโผ Bearish Downtrendยป).
Visually: rising price makes HH and HL; falling price makes LH and LL.
Levels:
Use horizontal lines as potential support/resistance zones.
When a level is broken, it disappears โ price โconfirmsโ beyond it.
BOS:
BOS โฒ โ price makes a new high in an uptrend, signaling strength.
BOS โผ โ new low in a downtrend, continuation of weakness.
CHoCH:
CHoCH โฒ โ price exceeds the previous high after a series of lower highs (LH). Possible upward reversal.
CHoCH โผ โ price breaks the previous low after a series of higher lows (HL). Possible downward reversal.
When Strict Dow CHoCH is active, the signal will only appear if the index trend already aligns and volume supports the new direction.
Index Confirmation:
The panel shows ยซโ Confirmedยป โ trends align; ยซโ Divergenceยป โ discrepancy (caution); ยซWaitingโฆยป โ not enough data.
Volume Confirmation:
ยซโ Volume confirmsยป โ directional volume agrees with the trend.
ยซโ Volume weakยป โ volume does not support the move (potential weakness).
Usage Recommendations
Start with default settings. For longโterm analysis, increase Swing Length to 20โ50.
For strict Dow Theory compliance, activate both confirmations and enable ยซStrict Dow CHoCHยป.
Choose a confirming asset correlated with the main chart (e.g., SPX for stocks, TOTAL for crypto).
Note: with strict filtering, CHoCH signals will be rare but more reliable.
Theoretical Background
The indicator applies the core principles of Dow Theory in a modern context, suitable for any market (stocks, indices, crypto, forex). Developed by Charles Dow in the late 19th century, Dow Theory is the foundation of trend analysis. Its key tenets implemented in the indicator are:
1. Trend Defined by Successive Peaks and Troughs
Bullish Uptrend โ each new high is higher than the previous one (Higher High, HH), and each new low is higher than the previous (Higher Low, HL).
Bearish Downtrend โ each new high is lower (Lower High, LH), and each new low is lower (Lower Low, LL).
A violation of this structure signals a potential trend reversal.
2. Support and Resistance Levels
Previous significant highs and lows become future support (former highs after breakout) and resistance (former lows after breakout). The indicator automatically draws horizontal lines from each confirmed pivot and extends them until price closes beyond the level.
3. Volume Confirmation
Volume should expand in the direction of the primary trend and contract during corrections. The indicator uses directional volume:
In an uptrend, average volume on upโbars (close > open) must exceed average volume on downโbars.
In a downtrend, downโbar volume must exceed upโbar volume.
4. InterโMarket Confirmation
Two key indices (e.g., Industrials and Transports) must confirm each other. The indicator allows selecting a confirming asset (an index or correlated instrument). The trend is considered confirmed when the confirming assetโs trend direction matches the main chart.
5. BOS (Break of Structure) and CHoCH (Change of Character)
Modern interpretation of Dowโs reversal signals:
BOS โ continuation of the current trend when an extreme is renewed in its direction.
CHoCH โ first reversal signal when price breaks the last opposing extreme (e.g., a new high after a series of lower highs). For strict Dow compliance, the indicator offers Strict Dow CHoCH: the signal appears only when both index and volume confirmations are satisfied (if active).
User Guide
Purpose
Visualize Dow market structure, autoโplot key levels, determine the current trend, and generate continuation/reversal signals with optional strict confirmation.
Main Chart Elements
HH / HL / LH / LL Labels at each confirmed pivot.
Horizontal Levels โ lines drawn from HH (resistance), HL (support), LH (resistance), LL (support). Levels are automatically deleted when price closes beyond them (or on a wick touch, depending on settings).
ZigZag Lines connecting consecutive highs and lows.
BOS โฒ / BOS โผ Labels โ trend continuation.
CHoCH โฒ / CHoCH โผ Labels โ potential reversal.
Info Panel (bottomโright) โ shows current trend, number of active levels, index and volume confirmation status.
Settings
Organized into functional groups:
โ๏ธ Main Parameters
Swing Length (bars) โ number of bars left/right to confirm an extreme. Smaller values give microโstructure; larger values capture the main trend.
๐ Levels (Horizontal Lines)
Customize visibility, color, line style, width, and break conditions (close vs. wick).
Limit the maximum number of displayed levels per type.
ใฐ๏ธ ZigZag
Color and thickness for up and down segments.
๐ท๏ธ HH/HL/LH/LL Labels
Size, color of labels and text.
๐ BOS / CHoCH
Toggle BOS/CHoCH display, colors, label size.
๐ Confirmation (Dow Theory)
Use Confirming Asset โ enable interโmarket confirmation.
Confirming Asset Symbol โ ticker of the confirming instrument.
Confirming Swing Length โ swing period for the confirming asset.
Confirming Asset Timeframe โ timeframe (empty = current).
Volume Confirms Trend โ enable directional volume check.
Volume Lookback Period โ averaging period for volume.
Strict Dow CHoCH (require confirmations) โ when on, a CHoCH appears only if the index trend matches and volume supports the new direction (when those confirmations are active).
Signal Interpretation
Trend Identification:
Check the info panel (ยซTrend: โฒ Bullish Uptrendยป or ยซโผ Bearish Downtrendยป).
Visually: rising price makes HH and HL; falling price makes LH and LL.
Levels:
Use horizontal lines as potential support/resistance zones.
When a level is broken, it disappears โ price โconfirmsโ beyond it.
BOS:
BOS โฒ โ price makes a new high in an uptrend, signaling strength.
BOS โผ โ new low in a downtrend, continuation of weakness.
CHoCH:
CHoCH โฒ โ price exceeds the previous high after a series of lower highs (LH). Possible upward reversal.
CHoCH โผ โ price breaks the previous low after a series of higher lows (HL). Possible downward reversal.
When Strict Dow CHoCH is active, the signal will only appear if the index trend already aligns and volume supports the new direction.
Index Confirmation:
The panel shows ยซโ Confirmedยป โ trends align; ยซโ Divergenceยป โ discrepancy (caution); ยซWaitingโฆยป โ not enough data.
Volume Confirmation:
ยซโ Volume confirmsยป โ directional volume agrees with the trend.
ยซโ Volume weakยป โ volume does not support the move (potential weakness).
Usage Recommendations
Start with default settings. For longโterm analysis, increase Swing Length to 20โ50.
For strict Dow Theory compliance, activate both confirmations and enable ยซStrict Dow CHoCHยป.
Choose a confirming asset correlated with the main chart (e.g., SPX for stocks, TOTAL for crypto).
Note: with strict filtering, CHoCH signals will be rare but more reliable.
Penafian
Maklumat dan penerbitan adalah tidak bertujuan, dan tidak membentuk, nasihat atau cadangan kewangan, pelaburan, dagangan atau jenis lain yang diberikan atau disahkan oleh TradingView. Baca lebih dalam Terma Penggunaan.
Penafian
Maklumat dan penerbitan adalah tidak bertujuan, dan tidak membentuk, nasihat atau cadangan kewangan, pelaburan, dagangan atau jenis lain yang diberikan atau disahkan oleh TradingView. Baca lebih dalam Terma Penggunaan.