What Is Dow Theory in Trading? Principles & Trend Analysis

The “Dow Theory” is used to analyse market trends and serves as the foundation of traditional technical analysis. It is based on the principles developed from the writings of Charles H. Dow.

The primary principles of Dow Theory in trading are:

Principle	Explanation
Market Discounts Information	Market prices reflect available information and expectations.
Three Market Movements	Markets are commonly analysed through primary, secondary, and minor movements.
Three Phases of a Primary Trend	Accumulation, public participation, and distribution are used to describe stages of a major trend.
Averages Should Confirm Each Other	Dow originally used industrial and transportation averages to assess confirmation of a broad market trend.
Volume Supports Price Movement	Volume can provide additional evidence for a price trend.
Trends Persist Until Reversal	An established trend is considered to continue until sufficient evidence indicates a reversal.

Dow Theory Explained for India

The principles of Dow Theory can also be applied to Indian equity-market analysis. For example, when assessing market trends, traders may examine:

The Nifty 50 and Nifty-related market indicators
Price highs and lows
Volume, and
Broader market participation

However, Dow Theory only provides a framework for identifying trends. It cannot predict the exact timing or magnitude of future price movements.

Analyse Market Trends With Trade246

Spot market trends by tracking real-time market prices on Trade246. We are a multi-asset trading platform offering access to seven different market segments, namely, NSE, NFO, US Stocks, Indices, Forex, Commodities, and Crypto.

Our registered users also gain unlimited access to advanced TradingView charts, 100+ technical indicators, and professional drawing tools. Register today and trade multiple assets from a single platform at lifetime 0* brokerage.

*Statutory charges and taxes may apply

Want to Start Trading?

Open a free Trade246 account and get access to NSE, F&O, Forex, Commodities, Crypto, US Stocks & Indices — all from a single platform.

Open Free Account Log In to Trade

← Previous What is Divergence in Trading? Next → What is Drawdown in Trading?

What is Dow Theory in Trading?

Dow Theory Explained for India

Analyse Market Trends With Trade246

Want to Start Trading?

Related Terms

What is NAV in Mutual Fund?

What is Budget Day Trading?

What is DeFi in Crypto?

What is a Rollover in Forex?

Brokerage Calculator

Intraday Calculator

Forex Profit Calculator

Pip Calculator

Margin Calculator