Charles Dow developed the Dow Theory to analyze stock market trends based on the movements of the Dow Jones Industrial Average and Transportation Average. The theory has several key tenets: (1) markets trend and move in primary, secondary, and minor trends; (2) bull markets exist when successive highs are made at higher levels and bear markets when successive lows are lower; and (3) for a confirmed trend, both averages must move together. The Dow Theory aims to identify market trend changes rather than predict exact price movements.

1. TECHNICAL INDICATORS FOR
IMPROVING YOUR INVESTMENT RESULTS
THE DOW THEORY
Submitted to:
Ms.Sandeep Nandra
Submitted by:
Aarti

2. Charles Henry Dow was born on a farm in Sterling,
Connecticut, in November 1851.
 At the age of 18, he began his career as a reporter.
 in 1875 moved to the Providence Journal.
After writing a lengthy study about the transportation
systems between Providence and New York City, he
developed an interest in business subjects.
financial reporter for The New York Mail and Express .
HOW IT STARTED

3.  after he became a writer and editor with the Kiernan News Agency he
hired his friend Edward Jones.
 Jones had been an editor for the Providence Sunday Dispatch.
 Together, Dow and Jones distributed financial news bulletins to New
York ’ s business District.
Cont…

4.  In 1882, bankrolled by another partner,
they formed Dow Jones & Company and began publishing the
handwritten Customer’ s Afternoon Letter , precursor of the Wall Street
Journal .
 The first stock index published
by Dow in 1884 was comprised of 11 stocks, 9 of which were
railroads...
 Five years later, the Wall Street Journal first appeared with Dow as
editor…..

5. Dow saw the stock market and his idea, yet to be named by
others as Dow ’ s theory, as an indicator of business activity
When he spoke of a“ person watching the tides, ” that was, of
course, an analogy to the great industrial companies ’ price
movements. To confirm that his reading of the “ tides ” was
correct, he checked another part of the“ seashore ” to see that
the ocean tides were the same there.
ORIGINS AND EVOLUTION OF THE
THEORY

6. Dow believed that it was more likely that the reading would be
correct.
After all, it is the rails (Transports) that deliver the
raw materials, and perhaps even the labor, to the mills of
industrial corporations.
And in the end, it is the Transports that
deliver the finished product to the ultimate consumers. Clearly
these two groups are interrelated, just as different areas of a
coastline have similar and related tides. So the Industrials and
Transports were and still are intertwined and need to be in sync
for a proper reading of his theory.
CONT..

7. In the stock market, that meant checking the other index he had
created: the railroads, which later became the Transportation
Index.
Dow had used the two indices in tandem because they were all
that was available.
Dow never explained why the two indices — the Industrials and
the Transports must confirm; instead he observed that they did
confirm when their signals subsequently proved to be correct
CONT..

8.  little time to write about and expound on his theory. By 1902,
Dow was in failing health and sold the company. He died on December 4
of that year..
 Dow never wrote down a complete description of his theory,
never dedicated a complete editorial to it, and never gave it a name.
A friend, A. J. Nelson, in his The ABC of Stock Speculation, named it
Dow ’ s theory in 1902. Most of what we know of the theory came from
a series of Wall Street Journal editorials written by Dow ’ s successor as
editor, William Peter Hamilton, between 1902 and 1929. He also
wrote about Dow ’ s theory in The Stock Market Barometer in 1922.
CONT..

9. • American Journalist
• Founded The Wall Street Journal
& Co-founded Dow Jones &
Company
• Developed a series of
principles for understanding &
analyzing market behavior
THEORY CREDITS

10. it is the method of forecasting
future trends of stock market
from the action of the market
itself as revealed by the D&J
industrial and transportation
average.
FORWARD

11. the first is the
narrow
movement from
day to day.
Second is short
swing, running
from two weeks
to month or
more and
the third is main
movement
,covering atleast
4 years in its
duration.
EXPLANATION OF THE
THEORY
According to charles dow “ the market is always consider having three
movements, all going at the same time

12. This theory advocates that stock behavior is
90% psychological and 10% logical.
The dow theory only describes the direction to
market trends and does not attempt to forecast
future movements or forecasting future prices
themselves.
CONT..

13. 1.The average(index numbers)
discounts everything.
it reflects thr combined market activities of thousands
of investors and brokers. Thus the agreegate judgement
of the share market and chnge in demand and supply
relationship of stock is reflected in the share price.
BASIC TENETS OF THE
THEORY

14. 2.Market
has
three
trends
Primary movement
Secondery movement
Minor trends
BASIC TENETS OF THE
THEORY

15. 3.The bull market.
So long as the successive price
advance reaches at the higher
level then the one before and
each secondary reaction or
price decline, stops at the
higher level then the previous
one, the primary trend is up
BASIC TENETS OF
THE THEORY

16. 4.The bear market. When each intermediate
decline carries prices to
successively lower levels
and each intervening
advance fails to bring
them back up to the top
level of the preceding
advance.
BASIC TENETS OF THE
THEORY

17. 5. The secondary trends are the
• intermediate declines or corrections which occur in bull market.
• Intermediate advances or recoveries in bear markets.
Normally these lasts from 3 weeks to as many months and generally retrace
from 1/3rd to 2/3rd of the gain or loss in the prices recorded In the previous
swing.
BASIC TENETS OF THE
THEORY

18. 6. The MINOR TRENDS
are the brief fluctuations lasting usually for 6 days but rarely for three weeks.
These are meaningless but go to make up secondary trend.
BASIC TENETS OF THE
THEORY

19. At times, a line can substitute for secondary trend.
A line in dow theory is a sidewise movement which lasts for two or three
weeks, may be for as many months.
In course of its formation, prices fluctuate within a range of 5% or less of
their mean figure.
BASIC TENETS OF THE
THEORY

20. SHORTCOMINGS OF THE THEORY
The dow theory provides a signal of change in the trend, often too late.
The dow theory depends on interpretation and is subject to all the hazards
of human ability.