What is the Dow Theory?
The Dow theory is a financial theory founded on a set of ideas derived from Charles H. Dow’s editorials. It fundamentally states that a significant shift between bear and bull sentiment in a stock market will occur when multiple indices confirm it.
The identified trend is accepted when it is backed by solid proof. The theory explains that if two indices move in the same direction, the identified primary trend is real. Whereas if the two indices do not match, then there is no clear trend. It focuses on price movements, trade volumes, capturing the trends with the help of pictorial representations and comparison of indices.