Essential principles of Dow’s Theory

Question

Write down the essential principles of Dow’s Theory?

Answer 1

Dow’s Theory is the oldest and the well known theories of technical analysis. It was presented by Charles H. Dow.

Dow’s theory has suggested six essential principles which are illustrated below:

- The averages discount the whole thing.

- Market has three chief movements. These are secondary, primary and minor movements.

- Lines point to movements. Such a movement points to either distribution or accumulation.

- Price-volume relationships offer background.

- The price action examines the trend in the market.

- The averages should confirm that is, the movements of two dissimilar market indices should confirm each other to confirm the all trend.