Dow Theory

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DEFINITION of 'Dow Theory'

A theory which says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high, it is accompanied or followed by a similar advance in the other.

BREAKING DOWN 'Dow Theory'

The theory also says that when both averages dip below previous important lows, it's regarded as an indicator of a downward trend.

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