๐ The 6 Core Tenets of Dow Theory: Keys to Understanding Market Movement
Dow Theory is built on six foundational principles that shape how the market moves โ and how you can read it with confidence:
1. The Market Discounts Everything
Every news story, rumor, analysis, and even trader emotion โ itโs all already priced in.
2. The Market Moves in Trends
Markets are always in one of three trends: up, down, or sideways. Identifying the trend is key to making the right decisions.
3. Primary Trends Have Three Phases
Accumulation Phase (smart money enters early)
Public Participation Phase (obvious uptrend, media hype)
Distribution Phase (smart money exits quietly)
4. Indices Must Confirm Each Other
No trend is valid unless confirmed by both the Industrial and Transportation averages.
5. Volume Confirms the Trend
In an uptrend, volume should increase. If prices rise but volume weakens โ be cautious.
6. A Trend Remains Until Proven Otherwise
Never assume a trend has ended without clear signals. Trends donโt reverse suddenly without warning.
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๐ In the next article, weโll explore the three types of trends and how to identify them clearly.
๐ If this content helps you understand how markets move, follow this series.
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