Dow Theory

Editorials in the Wall Street Journal written by Charles Dow based on his observations of recurring behaviors in the stock market and the movement of the industrial and railroad averages. The first attempt to formulate Dow's observations into a theory is attributed to S. A. Nelson in his 1902 book The A B C of Stock Speculation. The theory is based on the following premises: 1. The averages discount everything. 2. The market has three trends. 3. Primary trends have three phases. 4. The industrial and railroad averages must confirm each other. 5. The volume must confirm the trend. 6. The trend remains valid until a definite reversal signal occurs.

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