I conducted a quick search of the forums just a minute ago and was surprised to find only a handful of mentions of one of the oldest technical analysis schools of thought ever developed - Dow Theory.
For those not familiar with Dow Theory it eponymously named after the founder and first editor of the
Wall Street Journal, Charles Dow. Dow is often considered the father of modern tehcnical analysis and was the first to create an index with the goal of measuring the overall movement of U.S. equities. Dow, who died in 1902, did not formally formulate what is known today as Dow Theory, however, several of his successors pieced together his letters and writings to build on Dow's discoveries of market timing to beat the averages. One of the best known experts on Dow Theory was Robert Rhea who in the '30s refined Dow's observations describing them in detail in his book The
Dow Theory: An Explanation of Its Development and an Attempt to Define Its Usefulness as an Aid to Speculation.
Rhea outlined three hypotheses to define Dow Theory as follows:
- The primary trend is inviolate
- The averages discount everything
- Dow Theory is not infallible
Rhea further defined a list of Dow Theory theorems three of which are listed below:
- An idealized market picture consists of an uptrend, a top, a downtrend, and a bottom.
- Economic rationale should be used to explain market action.
- Prices trend.