Third Tenet

Third Tenet

The third tenet of Dow Theory is that the markets discount all news. This means that once news is released it is quickly reflected in the price of an asset. On this point Dow Theory is in line with the Efficient Market Hypothesis (EMH) which states that financial markets are “information ally” efficient. Prices on traded assets already reflect all known information and therefore are unbiased in the sense that they reflect the collective beliefs of all investors about future prospects.

This concept that the markets discount all news is one that is sited in arguments in favor of using technical analysis as a tool to profit from the markets as if it is true that markets already discount all fundamental factors then the only way to beat the market would be through technical analysis.

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