Dow Theory determines the various price movements and directions, it is a basic form of technical analysis to determine the sector rotation of stock price movements. The theory was derived by Charles H. Dow who was the co-founder of Dow Jones & Company.
Dow Theory is about 100 years old but still the concepts of dow theory are still valid in today’s volatile markets and stock price movements. Till today theory has been refined many times but still the main credit is in the pocket of Charles H. Dow.
Dow Theory was derived by Charles H. Dow in the late 19th Century.
Basic Tenets of Dow Theory
There are six basic tenets of dow theory, these tenets are the basic terminology for the analysis of stocks purely on the basis of dow theory in technical analysis.
- The First Tenet of Dow Theory is that Market have 3 trends.
- The Second Tenet is that Market Trends have 3 Phases.
- The Third Tenet is that Market Discounts all News.
- The Fourth Tenet is that Market Averages must confirm each other.
- The Fifth Tenet is that Trends are Confirmed by Volume.
- The Sixth Tenet is that Trends Exist until signals confirm that they have ended.
All these above listed tenets are the basics of this dow theory, if you want to analyse stock price movements on the basis of dow theory then you have to strictly follow the above listed tenets of dow theory.
We will discuss all these 6 tenets deeply with screenshot examples to help you understand better, so I’ll be posting these six tenets fully explained in our upcoming posts, so don’t forget to subscribe to our newsletter if you don’t want to miss any of our updates.