Dow Theory: Trend Hierarchies, Confirmation, and Reversal Signals

Summary

This overview explains Dow Theory through three trend scales: primary movements that define the broad market direction, secondary moves that correct the primary trend, and shorter daily fluctuations. It also summarizes six principles later writers attributed to the theory: prices reflect available information, primary trends pass through accumulation, public participation, and speculative phases, related averages should confirm one another, volume should support the trend, and a reversal should be confirmed before declaring the trend over.

The text presents these ideas as a framework for distinguishing meaningful market direction from shorter-term noise. Its discussion is conceptual rather than a tested trading system: it supplies no operational rules for defining trend changes, measured results, or evidence that the principles predict returns. The historical account also notes that the theory was assembled by later interpreters from Charles Dow's ideas.

Key ideas

• Dow Theory separates primary, secondary, and short-term market movements.
• A primary bull trend is described as moving through accumulation, broader participation, and speculative enthusiasm.
• Related market averages and trading volume are presented as confirmations of a trend.
• The framework advises waiting for a clear reversal signal before concluding that a primary trend has ended.
• The document gives conceptual principles but no quantified tests or execution rules.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.