Dow Theory

AAA

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.

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Nasdaq

    A global electronic marketplace for buying and selling securities, ...
  2. Dogs Of The Dow

    An investing strategy that consists of buying the 10 DJIA stocks ...
  3. Dow Jones CDX Indexes

    A series of indices that track North American and emerging market ...
  4. Dow Jones Industrial Average - ...

    The Dow Jones Industrial Average is a price-weighted average ...
  5. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
  6. Bjerksund-Stensland Model

    A closed-form option pricing model used to calculate the price ...
RELATED FAQS
  1. What are the "Dogs of the Dow"?

    The Dow Jones Industrial Average (DJIA) is an index of 30 of the most significant, mature and respected companies in the ... Read Full Answer >>
  2. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>
  3. How do I calculate the rule of 72 using Matlab?

    In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >>
  4. How do I calculate the standard error using Matlab?

    In statistics, the standard error is the standard deviation of the sampling statistical measure, usually the sample mean. ... Read Full Answer >>
  5. How do I adjust the rule of 72 for higher accuracy?

    The rule of 72 refers to a time value of money formula that investors use to calculate how quickly an investment will double ... Read Full Answer >>
  6. What is the difference between managerial accounting and financial accounting?

    In simple terms, managerial accounting exists to help managers make internal decisions that affect an organization, whereas ... Read Full Answer >>
Related Articles
  1. Trading Strategies

    The Pioneers Of Technical Analysis

    Every time an investor talks about getting in low or picking entry and exit points, they are paying homage to these men.
  2. Trading Systems & Software

    Four-Week Rule Boosts Winning Trades

    Acquaint yourself with an indicator that played a role in the early development of technical analysis.
  3. Active Trading Fundamentals

    Giants of Finance: Charles Dow

    Find out how this financial visionary helped everyday people enter the world of finance.
  4. Investing Basics

    Barking Up The Dogs Of The Dow Tree

    One well-known and successful strategy for cashing in on dividends is the Dogs of the Dow. Here's what you need to know about them.
  5. Personal Finance

    How Stock Market Indexes Changed Investing

    Find out how the first market averages were calculated and what they mean for investors today.
  6. Fundamental Analysis

    Profit With The Power Of P/E Ratio

    The P/E ratio is a valuable tool when deciding on an investment, but it's not the only thing to consider.
  7. Active Trading Fundamentals

    Dow Theory

    Learn about the foundation upon which technical analysis is based.
  8. Fundamental Analysis

    Understanding the Profitability Index

    The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.
  9. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  10. Fundamental Analysis

    Explaining the Monte Carlo Simulation

    Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!