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Dow Theory: Principles and Trends

Dow Theory, created by Charles H. Dow, is a foundational concept in technical analysis that focuses on stock market price movements to predict future trends. It is based on six main principles, including the idea that markets discount all available information and that they move in three primary trends: primary, secondary, and minor. Additionally, trends are confirmed by trading volume.

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26 views5 pages

Dow Theory: Principles and Trends

Dow Theory, created by Charles H. Dow, is a foundational concept in technical analysis that focuses on stock market price movements to predict future trends. It is based on six main principles, including the idea that markets discount all available information and that they move in three primary trends: primary, secondary, and minor. Additionally, trends are confirmed by trading volume.

Uploaded by

komalbrar0281
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as KEY, PDF, TXT or read online on Scribd

CHAPTER - 2

DOW THEORY

KOMAL BRAR
WHAT IS DOW THEORY ?
DOW THEORY IS A FOUNDATIONAL CONCEPT IN TECHNICAL ANALYSIS AND IS
NAMED AFTER ITS CREATOR, CHARLES H. DOW WAS A FINANCIAL JOURNALIST AND
THE CO-FOUNDER OF DOW JONES & COMPANY, WHICH IS KNOWN FOR PUBLISHING
THE WALL STREET JOURNAL. HE FORMULATED HIS THEORY THROUGH A SERIES OF
ARTICLES IN THE LATE 19TH AND EARLY 20TH CENTURIES, WHICH LAID THE
GROUNDWORK FOR MODERN TECHNICAL ANALYSIS METHODS.

DOW THEORY FOCUSES ON ANALYZING STOCK MARKET PRICE MOVEMENTS TO


PREDICT FUTURE TRENDS AND MAKE INVESTMENT [Link] THEORY IS
BASED ON SIX MAIN PRINCIPLE.
MARKET DISCOUNTS EVERYTHING

THIS PRINCIPLE STATES THAT ALL AVAILABLE INFORMATION, WHETHER PUBLIC OR


PRIVATE, IS REFLECTED IN THE CURRENT MARKET PRICE OF A STOCK OR INDEX.
THEREFORE, STUDYING PRICE MOVEMENTS CAN PROVIDE INSIGHTS INTO MARKET
SENTIMENTS EXPECTATION
THE MAEKET HAS THREE TRENDS
DOW THEORY SUGGESTS THAT MARKETS MOVE IN THREE PRIMARY TRENDS

PRIMARY TREND : The long term trend that lasts for more than a year and
represent the overall direction of market

SECONDARY TREND : These are shorter term movements that go against the
primary trend. They typically last for few weeks to a few months

MINOR TREND : These are very short term movements that lasts a few days to
few weeks and often noise within the primary and secondary trends
TRENDS ARE CONFIRMED BY VOLUME

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