Definition and Application in Market Trends
What Is the Dow Theory?
The Dow Theory, established by Charles H. Dow, posits that the stock market’s direction can be gauged by analyzing the movements of specific market averages. An upward trend is indicated when one of these averages, such as the Dow Jones Industrial Average (DJIA), surpasses a previous high and is supported by a corresponding rise in another average, like the Dow Jones Transportation Average (DJTA). By analyzing these averages, investors can gain insights into the overall business conditions and future market directions.
Key Takeaways
- The Dow Theory suggests that market trends are confirmed when advances in one market average are followed by similar movements in another, such as the DJIA and DJTA.
- According…
