1. Dow Theory: Introduction
  2. Dow Theory: The Market Discounts Everything
  3. Dow Theory: The Three-Trend Market
  4. Dow Theory: The Three Phases Of Primary Trends
  5. Dow Theory: Market Indexes Must Confirm Each Other
  6. Dow Theory: Volume Must Confirm The Trend
  7. Dow Theory: Trend Remains In Effect Until Clear Reversal Occurs
  8. Dow Theory: Dow Theory Specifics
  9. Dow Theory: Current Relevance
  10. Dow Theory: Conclusion

By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com

Any attempt to trace the origins of technical analysis would inevitably lead to Dow theory. While more than 100 years old, Dow theory remains the foundation of much of what we know today as technical analysis.


Dow theory was formulated from a series of Wall Street Journal editorials authored by Charles H. Dow from 1900 until the time of his death in 1902. These editorials reflected Dow's beliefs on how the stock market behaved and how the market could be used to measure the health of the business environment.

Due to his death, Dow never published his complete theory on the markets, but several followers and associates have published works that have expanded on the editorials. Some of the most important contributions to Dow theory were William P. Hamilton's "The Stock Market Barometer" (1922), Robert Rhea's "The Dow Theory" (1932), E. George Schaefer's "How I Helped More Than 10,000 Investors To Profit In Stocks" (1960) and Richard Russell's "The Dow Theory Today" (1961).

Dow believed that the stock market as a whole was a reliable measure of overall business conditions within the economy and that by analyzing the overall market, one could accurately gauge those conditions and identify the direction of major market trends and the likely direction of individual stocks.

Dow first used his theory to create the Dow Jones Industrial Index and the Dow Jones Rail Index (now Transportation Index), which were originally compiled by Dow for The Wall Street Journal. Dow created these indexes because he felt they were an accurate reflection of the business conditions within the economy because they covered two major economic segments: industrial and rail (transportation). While these indexes have changed over the last 100 years, the theory still applies to current market indexes.

Much of what we know today as technical analysis has its roots in Dow's work. For this reason, all traders using technical analysis should get to know the six basic tenets of Dow theory. Let's explore them.

(To read more, check out The Basics Of Technical Analysis.)


Dow Theory: The Market Discounts Everything
Related Articles
  1. Investing

    Giants of Finance: Charles Dow

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

    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.
  3. Investing

    Opinion: Dow 22,000 Is (Even More) Stupid

    The problem's not the 20,000 or the 22,000. It's the Dow.
  4. Investing

    Dow Theory Gores Stock Market's Bears

    Bear Hunting: The Dow Jones Transportation Average's new high is a bullish indicator
  5. Financial Advisor

    DJIA vs. Dow Transport: A Telling Divergence?

    The Dow Transport Index and the Dow Jones Industrial Average are sending mixed signals. What does it mean?
  6. Investing

    Understanding And Playing The Dow Jones Industrial Average

    Learn strategies for investing in this price-weighted index and how to interpret its movements.
  7. Insights

    Understanding The S&P Dow Jones Indices

    S&P Dow Jones Indices offer more than 830,000 indices, including the S&P 500 and the Dow Jones Industrial Average.
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center