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Dow relied exclusively on closing prices. He believed that averages had to close higher than a previous peak or lower than a previous trough to have significance. Dow did not consider intraday penetrations valid.
Figure 2.4a Failure Swing Bottom. The“buy”signal takes place when point B is exceeded (at B1).
Figure 2.4b Nonfailure Swing Bottom.“Buy”signals occur at points B1 or B2.
When traders speak of lines in the averages, they are referring to horizontal patterns that sometimes occur on the charts. These sideways trading ranges usually play the role of corrective phases and are usually referred to as consolidations. In more modern terms, we might refer to such lateral patterns as“rectangles.”