Down Theory demonstrates the author's thought

Little is known about the founder of this doctrine. Charles H. Dow is also the founder of the famous Wall Street Journal of Wall Street.


The Dow theory reflects Mr.Charles Dow's thought that stock market prices reflect the health of the entire economy.

Until Charles Dow's death, his theories had not been published to financial investors. It was not until his associates including George Schaefer, Robert Rhea and William Hamilton (author of Stock Market Barometer) published Dow documents, that the world knew about this work.

Dow believes that the stock market is a reliable tool to measure the economic situation, even determine the future trend of the market and the economy. Based on his theory, Dow created the Dow Jones industrial index (the premise for typical stocks of US stocks later).

6 basic arguments of Dow theory
  1. Markets reflect everything: The Dow theory holds that the market is efficient, that is, the market price responds to all information available in the market.
  2. Three types of market trends: Dow assumed that the market would have the main trend, a secondary trend, and a short-term trend.
  3. The main trend has 3 phases: accumulation, a big move, and phase transition. With a bear market, it will be called distribution, a strong drop, and a panic phase.
  4. Market metrics must be mutually identifiable: Dow uses the Dow Jones industrial index and the Transportation Averages to measure the health of an economy. Only when both indices increase will the market trend be real.
  5. The market volume determines the trend: in an uptrend, the market volume will increase when the price increases (on the right trend), and on the contrary, the decrease in volume indicates that the uptrend is showing signs of weakness.
  6. The trend will last for a long time until the market reversal appears clear: the reversal of the main trend is easily confused with a recovery phase of a secondary trend, so wait for the trend to reverse. a clear way to correctly identify the trend of the market.
With Dow's immense success as a trader, you will need to know these six basic theories. From 6 theories, many schools of technical analysis have formed and created the financial investment industry as strong as today.