Dow Theory attempts to predict major stock market trend direction. It was put together by Charles Dow, and it comprises three parts, trends, waves, and time.
Dow Theory Explains Stock Market Direction Using Six Principles. These Principles form the Backbone of Modern Technical Analysis of Stocks & Markets
The first part is that the market always has a trend. The second part is that the market moves in waves.
The third part is that the market can be divided into three sections:
Primary trend. The primary trend is the long-term direction of the market.
Secondary trend. The secondary trend is a shorter-term movement that goes against the primary trend.
Short-term trend. The short-term trend is a very short-term movement that goes with the primary trend.
Dow believed that if you could identify these trends, you could make money in the stock market. He developed a system of using averages to try to identify these trends.
This system is called the Dow Jones Industrial Average or the DJIA.
The DJIA is made up of 30 stocks that are chosen by the editors of the Wall Street Journal. These stocks are chosen because they are thought to be a good representation of the market.
The DJIA is calculated by taking the prices of these stocks and averaging them together. The problem with using the DJIA to predict the market is that it only represents a small part of the market. Also, the stocks in the DJIA can change, so it is not a true average. But, it is still used by many people to try to predict what the stock market will do.
Dow Theory has been around for over 100 years, and it is still used by many people today.
Some people say that it doesn’t work, but many people still believe in it. If you want to learn more about the Dow Theory, watch this video from my Liberated Stock Trader Pro Training Course.