Continue reading...Most consider the father of technical analysis (the science of forecasting market movements based on price patterns) to be Charles Dow, the founder of Dow Jones and Company which publishes the Wall Street Journal. Around 1900 he wrote a series of papers which looked at the way prices of the Dow Jones Industrial Average and the Dow Jones Transportation Index moved. After analyzing the Indexes he outlined his belief that markets tend to move in similar ways over time. These papers, which were expanded on by other traders in the years that followed, became known as ?Dow Theory?.
Although Dow Theory was written over 100 years ago most of its points are still relevant today. Dow focused on stock indexes in his writings, but the basic principles are relevant to any market.
Dow Theory is broken down into 6 basic tenets, which we take a look at below.
The first tenet of Dow Theory is that The Markets Have 3 Trends.
Up Trends which are defined as a time when successive rallies in a...
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