Introduction to Dow Theory

Introduction to Dow Theory

Dow Theory was developed by Charles Dow in the late 19th Century based on his analysis of market price action. The Dow Theory has been around for almost 100 years and the basic components of Dow Theory still prevails even in today’s volatile and technology driven market. Dow Theory developed by Charles Dow, refined by William Hamilton and articulated by Robert Rhea,  addresses not only technical analysis and price action, but also market philosophy.

“Charles Dow is considered to be the father of technical analysis”

The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow, journalist, founder and first editor of the Wall Street Journal and co-founder of Dow Jones and Company.

Assumptions of Dow Theory

Following are some of the assumptions stated by Rhea for the successful application of Dow Theory,

• The first assumption of Dow Theory states that – Manipulation of primary trend is not possible, only individual shares could be manipulated as stated by Hamilton.
• The market reflects all available information
• Dow theory is should be looked upon as a set of guidelines and principles to assist investors and traders with their own study of the market.

 

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