Dow Theory: Unlocking Market Trends for Consistent Profits
Dow Theory is the foundation of modern technical analysis. Developed by Charles H. Dow in the late 19th century, this theory asserts that the market reflects all information and price movements always follow identifiable trends. To this day, Dow Theory remains a "compass" for traders in understanding price behavior.
6 Core Principles of Dow Theory:
The Market Reflects All
Price includes all information: news, expectations, psychology, and economic data. Therefore, the chart is the most reliable source of information.
The Market Has 3 Trends
Primary Trend: Lasts for several months to years.
Secondary Trend: Adjustments within the primary trend, usually lasting a few weeks.
Minor Trend: Fluctuates over a few days, less significant.
The Primary Trend Has 3 Phases
Accumulation: Smart investors quietly buy.
Public Participation: Large capital flows in, and the trend becomes clear.
Distribution: Large institutions begin to offload, preparing for reversal.
Indices Must Confirm Each Other
Dow used the industrial and railroad indices; today, this means trends are only valid when multiple markets/inter-markets confirm the same direction.
Volume Confirms the Trend
In an uptrend, volume should increase when the price rises and decrease during corrections. The opposite is true for downtrends.
Trends Continue Until Clear Reversal Signals Appear
Traders shouldn’t try to pick bottoms or tops, but rather follow the trend until there's confirmation of a change.
Practical Significance for Traders:
Helps identify the main trend to follow the big money.
Aids in risk management by avoiding trading against the trend.
Provides a comprehensive view: price, volume, and market phases.
6 Core Principles of Dow Theory:
The Market Reflects All
Price includes all information: news, expectations, psychology, and economic data. Therefore, the chart is the most reliable source of information.
The Market Has 3 Trends
Primary Trend: Lasts for several months to years.
Secondary Trend: Adjustments within the primary trend, usually lasting a few weeks.
Minor Trend: Fluctuates over a few days, less significant.
The Primary Trend Has 3 Phases
Accumulation: Smart investors quietly buy.
Public Participation: Large capital flows in, and the trend becomes clear.
Distribution: Large institutions begin to offload, preparing for reversal.
Indices Must Confirm Each Other
Dow used the industrial and railroad indices; today, this means trends are only valid when multiple markets/inter-markets confirm the same direction.
Volume Confirms the Trend
In an uptrend, volume should increase when the price rises and decrease during corrections. The opposite is true for downtrends.
Trends Continue Until Clear Reversal Signals Appear
Traders shouldn’t try to pick bottoms or tops, but rather follow the trend until there's confirmation of a change.
Practical Significance for Traders:
Helps identify the main trend to follow the big money.
Aids in risk management by avoiding trading against the trend.
Provides a comprehensive view: price, volume, and market phases.
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📍 Accurate, verified technical analysis
⚡ Fast updates – Never miss a golden entry
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Top trading opportunities are waiting for you! : t.me/+TaRRH29IRysyNGJl
🔥 High-quality signals – Win rate up to 85%
📍 Accurate, verified technical analysis
⚡ Fast updates – Never miss a golden entry
🔥 High-quality signals – Win rate up to 85%
📍 Accurate, verified technical analysis
⚡ Fast updates – Never miss a golden entry
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.