Dow Theory is a market analysis method that was developed by Charles H. Dow, co-founder of The Wall Street Journal, in the late 19th and early 20th centuries. Dow Theory is based on the idea that stock market prices move in trends and that these trends can be identified and analysed to make informed trading decisions. According to Dow Theory, there are three primary types of market trends: primary, secondary, and minor. Primary trends are long-term movements that last for several months or years, and they are characterised by higher highs and higher lows for uptrends and lower lows and lower highs for downtrends. Secondary trends are intermediate-term movements that last for several weeks or months, and they are typically characterised by a corrective action that counteracts the primary trend. Minor trends are short-term movements that last for several days or weeks and are often used by traders to enter or exit positions within the context of the primary and secondary trends. Dow Theory is not a precise or definitive method of market analysis, but it continues to be used by many traders and investors as a framework for understanding market movements and making trading decisions.
“You don’t wanna believe in luck – you wanna believe in odds.” – Charlie Munger