Buy and Sell Signals

A classical sell signal is the inverse of a classical buy signal. The standard sell signal structure applies in about 90% of cases. Dow Theory evaluates index levels using closing prices rather than intraday prices. The typical buy signal occurs when the market breaks above the highs of the secondary reaction after the pullback. The buy signal indicates a primary bull market after both indexes confirm the breakout. A sell signal requires confirmation across the three indexes before it is complete. The fourth sell signal can begin only after the market first generates a typical Dow Theory buy signal. A classical buy signal occurs when both the Industrials and Transports break above prior rally highs after a downtrend low, secondary rally, and qualifying pullback. The sell signal occurs when the lows of the secondary reaction are violated. The usual sell signal setup follows a market pullback, a failed rally, and a break below the pullback lows. A sell signal is generated when both the Industrials and Transports penetrate the prior pullback low after a failed rally. A typical Dow Theory sell signal forms after a secondary reaction against the bullish trend and a rally lasting two or…