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

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. Endowment Effect

    The endowment effect describes a circumstance in which an individual ...
  6. Self-enhancement

    The self-enhancing bias is the tendency for individuals take ...
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 >>
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. Technical Indicators

    Break Down Modern Market Trends To Grasp Movement

    Convergence points to dynamic conditions that can elicit strong trends while divergence suggests conflict, more typical of rangebound price action.
  9. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  10. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center