1. Dow Theory proposes that markets move in trends and have three phases: accumulation, trend, and distribution. It also states that markets discount all news and the industrial and transportation averages must confirm each other. 2. Volume confirms price and trends, with volume increasing in the direction of the trend. Trends tend to continue until they don't, but it can be difficult to determine when a trend is ending. 3. The document discusses tools for analyzing markets based on Dow Theory, including candlestick charts, calendars, comparing the Dow Jones Industrial and Transportation averages, and using volume weighted average price to analyze volume at price levels.

1. Dow Theory Decoded:
How a 140 year old market analysis is the key to
successfully trading any market today.
With Raghee Horner

2. “It was in the late 1890s that a few market students, led by
Charles H. Dow, discovered that the stock market had a
“trend,”that the great body of stocks moved more or less in
unison,regardless of the price fluctuations in individual stocks.
This “trend” action led to the development of a “trend theory”
and ultimately to the Dow Theory.” - R. Rhea
It started with something we all now take for granted.
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3. The Three Phases of Dow Theory
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Trends
A series of higher highs
and higher lows. The
higher highs get the broad
attention while the higher
lows are the support or
“backbone” of the trend.
Distribution
Not just sideways price
action but wide and
somewhat unpredictable
highs and lows. Most often
at the end of an uptrend as
one group of buyers sells
to the next and late group
of buyers.
Accumulation
Narrow sideways action.
Narrow can be defined by
volatility or average true
range which is the
historical price movement
range. This type of chop
can precede momentum
breakouts.

4. Understanding trends are the foundation of Dow Theory.
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5. The market is not just up and down trends...
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6. Another type of sideways markets...
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7. Narrow sideways action is very different from “chop”.
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8. Identify the current market trend.
Anything less is guessing at the appropriate
strategy and indicator.
The first step of each trade setup...
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9. “...that the stock market as a whole had an underlying
trend, distinct from the daily fluctuations of individual
stocks, led to the use of the Dow Jones averages.” - R. Rhea
Dow created the averages.
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10. Focusing on groups of stocks that move
together or affect one another was the early
foundation of Dow Theory.
We still use this today beyond Dow
Industrials and the Dow Transportation
averages.
Trending markets are the basis for every trader and investor
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11. “Keep an eye on the transports.”
It’s one of the oldest sayings in the market.
Dow believed that railroads, truckers and airlines were
forward-looking indicators on the economy.
Transportation and Industrials
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12. Volume is another way of viewing opinion and
participation at a price level and not for the entire day.
Volume should increase in the direction of the trend.
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13. Volume confirms price and trend.
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14. Using volume can be tricky.
There are limitations to end of
day volume that doesn’t show
participation at specific price.
There are newer and better
ways to view participation at
specific price levels now, and
I’ll share that with you shortly.
New technology for the 1880’s principle of volume
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15. Industrial and Transportation Averages must confirm each other.
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16. Dow Theory believes that the market discounts all news.
That means Dow believes price reflects what the market knows or expects.
This also explains why surprises are reacted to so dramatically.
Dow Theory does not ignore news..
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17. A trend will continue, until it doesn’t...
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18. But how do you know the difference between noise and the end?
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19. 1. Markets have three basic movements.
2. Markets have three basic phases: Accumulation, Trend, Distribution.
3. Markets discount all news.
4. The Dow Jones Industrial Average and the Dow Jones Transportation Average must confirm one
another.
5. Volume confirms price and trends.
6. Trends tend to continue.
Decoding Dow
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20. Use GRaB Candles to decode the movement and phases.
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21. Know the calendar to decode events.
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22. Use GRaB Candles to compare the DJT and INDU
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23. How do we see volume at
specific price levels versus a
period of time?
Volume Weighted Average Price
or “VWAP”
(pronounce “vee-wapp” like an
iPhone “app”)
Volume Weighted Average Price
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24. Notice the the VWAP line (cyan)
showing support before the
sudden increase in volume.
Dow would’ve loved VWAP.
Use Volume Weighted Average Price to confirm price/trend
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25. Continuation in Pepsi (PEP) using Dow-influenced tools
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