Encyclopedia of Investment Terminology

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Dow Theory

The Dow Theory was designed based on Charles Dow 255 editorials written for the Wall Street Journal. It is a theory on price movements which is applied to technical analysis. The Dow theory makes the following assumptions: that the market has three movements, a main movement, a medium swing, and a short swing; that trends have three phases; that stock prices will be affected by the news; and that trends are confirmed by volume.

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