📈 Dow Theory: Understand the Fundamentals of Technical Analysis
The Dow Theory, also known as the Dow Jones Theory, is one of the pillars of technical analysis in financial markets. Developed by Charles Dow, co‑founder of The Wall Street Journal and creator of the Dow Jones indices, this theory provides the foundation for understanding how prices move over time.
What is the Dow Theory?
The central premise is that market price reflects all available information — from economic factors to investor behaviour. Price movements follow three distinct types of trends that interact with each other.
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🧩 Fundamental Principles
1. The Market Discounts Everything
All relevant events, expectations, and information are already embedded in asset prices.
2. Three Types of Trends
- Primary: Long‑term (months/years) – bull or bear market.
- Secondary: Temporary corrections within the main trend.
- Minor: Short‑term fluctuations (days/weeks).
3. Trends Develop in Three Phases
- Accumulation: Informed investors enter quietly.
- Public Participation: The trend gains traction.
- Distribution: The trend becomes obvious to everyone.
4. Indices Must Confirm
Different indices must show the same behaviour to confirm a trend.
5. Volume Must Confirm
Volume should increase in the direction of the trend.
6. Trend Continues Until a Clear Reversal
A trend persists until a clear reversal signal appears.
🚀 Conclusion
The Dow Theory remains relevant even after 100+ years. Learning it is the first step to interpreting markets strategically.