Dow Theory
A foundational set of principles about how markets move in trends, confirmed across related indices, and signal their own reversals, underlying much of modern technical analysis.
Dow Theory is a foundational set of principles, developed from the writings of Charles Dow in the late 19th century, that underlies much of modern technical analysis. Its core tenets include that markets move in three simultaneous trends of different durations (primary, secondary, and short-term), that a primary trend typically unfolds in distinct phases, and that a trend remains in effect until clear, decisive evidence of a reversal appears.
A specific Dow Theory tenet, developed for traditional stock-index markets, holds that a genuine trend should be confirmed by related market indices moving in the same direction together, rather than diverging from each other — applying this specific confirmation concept to crypto requires adaptation, since crypto doesn't have a direct equivalent to Dow's original paired indices, though the broader underlying principles about trend persistence, phases, and reversal confirmation have influenced virtually all subsequent technical analysis frameworks, including market structure (see Kaavon's "Market Structure" glossary definition) and Elliott Wave Theory (see Kaavon's "Elliott Wave Theory" glossary definition).
Examples
- Dow Theory's principle that a trend remains in effect until clear, decisive evidence of reversal appears underlies the general technical-analysis practice of requiring confirmation before declaring a trend change.
- Dow Theory's original cross-index confirmation concept, developed for traditional stock markets, requires adaptation when applied to crypto, which lacks a direct equivalent to its original paired indices.