What Is Dow Theory And How It Works?

The Dow theory is a very popular financial theory. The theory says that the market is an upward trend if the average of any sort of industry advances above. The theory is a typical framework that precisely products that the market is an upward trend. 

The Dow Theory (ทฤษฎี ดาว dow theory, which is the term in Thai) is predicated with the thesis that the market tends to discount on everything in a very consistent way that makes the efficient market hypothesis.

Charles Dow eventually died in 1902. Due to his uncertain death, he couldn’t publish his entire theory. Still, there are many editorials and FXCL broker review (รีวิว โบรกเกอร์ FXCL, term in Thai) in the market which explains the theory by Charles Dows.

The Basics Of The Dow Theory

Charles Dow entirely believed that the stock market as a whole is a very reliable measure of all the business conditions. This sums up every condition of the economy. 

Hence, by analysing the overall market one can easily predict what the market is going to face in the coming time.

How Does The Dow Theory Work?

Below mentioned are very important components of the Dow theory that each and every one should consider.

  1. The first principle of the Dow Theory tends to state that the market discounts everything. The theory operates on the efficient market hypothesis. The concept of the EMH states that the asset prices tend to incorporate all the stock information.
  2. In the second principle, the Dow Theory tends to state that there are three different kinds of primary market trends. For successful investments, it is important to evaluate these primary market trends. These market trends also tend to last for more than a year. Later on, there are chances that these might get changed.
  3. In the next phase of the theory, Dow suggested that the primary market trends come with three different phases. The three different phases are the bull phase, accumulation phase, and public phase. Also, in terms of the bear market, these are called as distribution phase, public participation phase, and the panic phase.


Below mentioned are the three important principles of the Dow theory. The theory works on these principles and is also very smooth to understand and hence implement too. Dow, in the latter also implement that the indices in the business expect should confirm with each other. The theory also suggests that the closing prices and the line ranges should also be kept in mind while considering the appropriate working.