Dow Theory - Introduction to Corporate Finance
- 1. DOW THEORY GAURI JAIN (111), DIV. A
- 2. A framework to analyze and predict stock market trends based on market movements. Introduced by Charles H. Dow, co-founder of the Wall Street Journal and the Dow Jones Industrial Average (DJIA). Later refined by analysts like William P. Hamilton. Key Idea: Markets reflect all information. Every known factor—economic, political, or social—gets absorbed into market prices. Example: A sudden policy change can immediately affect stock prices.
- 3. 6 Tenets of Dow Theory • Markets move in three trends: Primary, secondary, minor. • Trends have three phases: Accumulation, public participation, distribution. • The averages discount everything. • The averages must confirm each other. • Volume must confirm the trend. • A trend continues until a reversal is proven.
- 4. Predicting bull and bear markets. Real-Life Application Spotting market reversals early. Helping long-term investors stay patient.
- 5. Criticisms of Dow Theory Lagging Indicator Overreliance on Indices Inadequate for Short-Term Trading Volume Interpretation Issues Outdated for Modern Markets
- 6. Test Your Knowledge! Q1 What is the primary focus of Dow Theory? a) Individual stocks b) Overall market trends c) Company earnings d) Cryptocurrency prices (Correct answer: b) Q2 Which of these is not a Dow Theory tenet? a) Markets move in three trends b) Markets are random c) Volume confirms trends d) Trends continue until reversal (Correct answer: b) Q3 What does the "averages must confirm each other" tenet mean? a) Market indices should move together. b) Volume and prices must align. c) Stocks in different sectors must align. d) Average trade volume must rise. (Correct answer: a) Q4 Which of the following phases is not part of a trend? a) Accumulation b) Distribution c) Public participation d) Depreciation (Correct answer: d) Q5 What kind of market does Dow Theory analyze? a) Cryptocurrency b) Stock market c) Real estate d) Commodity market (Correct answer: b)
- 7. Thank You!