Dow theory

Dow Theory

Used in the context of general equities. Technical theory that a major trend in the stock market must be confirmed by simultaneous movement of the Dow Jones Industrial Average and the Dow Jones Transportation Average to new highs or lows.

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Dow theory

A technical trading theory that holds that stock market price trends can be forecast based on price movements of the Dow Jones Averages (industrials and transportation). The theory classifies price movements into individual components of primary, secondary, and daily. Only when both averages reach new highs or lows (one average confirms the other) is a major trend in progress.

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Dow theory. Dow theory maintains that major market trends depend on how the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average behave.

They must move simultaneously in the same direction until they both hit a new high or a new low in order for a trend to continue.

Some experts discount the relevance of this approach as a useful guideline, arguing that waiting to invest until a trend is confirmed can mean losing out on potential growth.