Dow Theory
An early framework holding that markets move in primary, secondary and minor trends, and that indices must confirm one another.
How it is identified
Test: a primary trend is established when successive peaks and troughs move in one direction and a second related index confirms the same direction
Unit
qualitative
In depth
Formulated from Charles Dow's editorials at the turn of the twentieth century, the theory is the ancestor of most later technical analysis: the ideas of trend, confirmation and volume corroboration all originate here. Its confirmation principle — that an industrial index and a transport index must agree — reflected an economy where goods produced had to be shipped, a logic that maps awkwardly onto a modern services economy. Its enduring contribution is conceptual rather than operational: markets discount known information, trends have identifiable phases, and a move unconfirmed elsewhere deserves scepticism. It is described here as history, not as a trading method.
Worked example
Under the theory, a new high in an industrial index unaccompanied by a new high in a transport index is unconfirmed. Applied to modern India, choosing which two indices should confirm each other is itself the unresolved question.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Dow Theory” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.