Web Trader MT5
Dow Theory is one of the oldest frameworks in technical analysis, developed from Charles Dow’s writings in the late nineteenth century and later formalized by other analysts after his death.
At its core, it holds that markets move in identifiable primary trends – lasting months to years – within which shorter secondary trends and minor daily fluctuations occur.
One of its most important principles is confirmation: a trend signal in one major index should be confirmed by another before it’s trusted. In Dow’s time, that meant the Dow Jones Industrial Average and the Dow Jones Transportation Average moving in the same direction.
If industrials were rising but transports weren’t, the move was considered suspect. It also holds that trends remain in place until there is clear evidence they have reversed – a deceptively simple idea that underpins much of modern trend-following.
Example: An analyst notices the industrial index making new highs, but the transportation index is lagging and still below its previous peak. According to Dow Theory, divergence is a warning – the rally lacks confirmation, and the primary trend may not be as healthy as the headline numbers suggest.
