The Six Principles of Charles Dow's Theory — The Laws from Which Technical Analysis Was Born

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Charles Dow, the founder of the Wall Street Journal and the famous Dow Jones Index, laid the foundational principles of what is known today as 'technical analysis' more than a century ago. Dow's theory was not just observations, but laws that accurately describe market movements with scientific precision that is still valid today.

Here are the six principles on which modern technical analysis is built:

1️⃣ The market discounts everything

Price reflects all available information — from news and the economy to investor sentiment.

2️⃣ The market moves in three directions

Long-term main trend (trend), medium secondary trend, and short trend representing daily fluctuations.

3️⃣ The main trend has three phases

Accumulation – Participation – Distribution.

4️⃣ Indicators confirm each other

The performance of different indicators (such as industry and transportation) must agree to confirm the overall trend.

5️⃣ Trading volume confirms the trend

A strong trend is always supported by increasing trading volume, and vice versa.

6️⃣ The trend continues until reversal signals appear

The trend does not change unless clear signals appear, not just temporary fluctuations.

These simple rules were the beginning of a vast science called technical analysis, and they are still used today as the foundation for every indicator, model, or analytical tool in the world.

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