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Investment Strategies
Categories
- Value Investing
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Growth Investing
|- Income Investing
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Market Capitalization
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Momentum Investing
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Technical Investing
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Buy and Hold Strategy
- Buy What You Know
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Contrarian Investing
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Turnaround Investing
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Tobin’s Q
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Responsible Investing
- ADR's
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Global Investing
- The Dow Theory
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Odd-Lot Theory
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Election Cycle Theory
- Dow Dividend Theory
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Penny Stocks
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Initial Public Offerings
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Dollar Cost Averaging
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Drips
- Risk Tolerance
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Dow
Theory
The Dow Theory is pure
technical analysis. Charles Dow, the first editor of the Wall Street
Journal, developed it in the 1890’s. The theory became formalized after his
death in 1902. Mr. Dow used the theory to gauge the general business
conditions and trends of his day. Investors who still follow his theory buy
when the market goes higher then its last peak and sell when the market
sinks below its preceding valley.
The theory
tries to identify if the market is on an upward or downward trend, using the
averages that he developed: the Dow Jones Industrial Average (DJIA) and the
Dow Jones Transportation Average (DJTA). He identifies three movements in
stocks. The primary trend, which is the long-term trend, may last several
years to a decade. The secondary trend identifies market corrections within
the primary trend. There may be two or three secondary trends in each
primary bull or bear market. Last, the daily fluctuations of stock prices.
The Dow Theory views daily price swings as unimportant to the direction of a
primary trend. The theory identifies which way the market is moving, but
only after the fact. It’s not used as a tool to predict future prices or
trends. While not 100% accurate, it does give the investors some sense of
the direction of the market, which is always valuable information.
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