Dow theory
Dow theory is a set of trend principles drawn from Charles Dow's writing in the late 19th century. Most technical analysis rests on it: price reflects everything, and trends move in waves.
How it works
Charles Dow co-founded the Wall Street Journal and created the Dow Jones index. He never wrote one unified theory; his followers assembled it from his editorials. It is usually summarised in six tenets: price discounts all information; there are three kinds of trend; a primary trend has three phases; the averages must confirm each other; volume confirms the trend; a trend stays in force until there is a clear reversal signal.
The three trends are primary (a year or more), secondary (corrections lasting weeks to months) and minor (days). The three phases of a primary trend are accumulation, when the best-informed buy; public participation, when everyone notices; and distribution, when early buyers sell to latecomers.
The most practical idea is defining trend by highs and lows: an uptrend is a series of higher peaks and higher troughs. Modern ideas like market structure, break of structure and even the Wyckoff method grew out of this.
BTC is rising: trough $40,000, peak $48,000, trough $44,000, peak $52,000. In Dow terms that is a primary uptrend. A pullback to $46,000 is a secondary correction; the trend is intact while price holds above $44,000. A close below $44,000 after a failed attempt to beat $52,000 is a possible reversal signal.
The mistake is treating every correction as a reversal. Dow theory says plainly that a trend holds until there is a clear signal otherwise. Instead of guessing the top, mark the last significant low and change your view only when it breaks.
Questions and answers
What is Dow theory in simple terms?
It is the basic rules of trends: price reflects everything, trends come in different sizes, and a trend continues until it is clearly broken.
What are the three phases of a Dow trend?
Accumulation, public participation and distribution. The best-informed buy first, then everyone joins, and at the end early buyers sell to latecomers.
Is Dow theory still relevant?
Its ideas underpin almost all technical analysis, including market structure and SMC. The rule about averages confirming each other is used less today.
Related terms
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Updated: 2026-10-19