The Sacred Chickens, The Holy Grail and Dow Theory or Replacing Dow Theory with John Magee’s Basing Points Procedure

Dow Theory has served technicians and long-term investors in the Dow, more or less, since, more or less, 1897.

Robert D. Edwards and John Magee wrote their classic work, Technical Analysis of Stock Trends for “the mid-term speculator” – the trader/investor who wanted to attempt to capture trends of shorter length than Dow Theory primary market moves.

Of the methods presented in their book, one, particularly, called the Basing Points Procedure, can be adapted to long term (Dow Theory length) investing. The method has many virtues, among them simplicity, clarity, ease of use, tenacious trend following capability, stop advancement to lock in profits, almost algorithmic operation, unambiguous signals when the trend changes. In short, the Holy Grail.

In this book WHC Bassetti uses his own adaptation of the Basing Points Procedure on the Dow Industrials since more or less 1900 and compares its results with those of the commonly agreed upon results of the Dow Theory over the same period.

For contrast and comic relief a comparison to Buy-and-Hold is made. The result reveals that Magee’s adapted procedure is an attractive and simple alternative to Dow Theory and may even be considered superior to it.

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