Introduction
The Dow Theory is the oldest, most widely accepted method of analyzing and forecasting market trends. It was developed by Charles Dow, who claimed to have invented this methodology in 1896. The theory is based on the concept of time, with today's index being a "snapshot" of the market at that moment in time. The Dow Theory considers six factors that are used to make predictions about future movements in stock prices for an index, such as the Dow Jones Industrial Average: change in volume over previous periods (this is called historical volatility); change in open interest over previous periods (called historical volatility of open interest); change in high-low range over previous periods (called relative strength); trend following; and momentum."
The Dow Theory is the oldest, most widely accepted method of analyzing and forecasting market trends.
The Dow Theory is the oldest, most widely accepted method of analyzing and forecasting market trends. It was developed by Charles Dow, who claimed to have invented this methodology in 1896.
The theory works on the concept of time: today's index is a "snapshot" of the market at that moment in time. The theory states that if stocks are rising (or falling), then investors should buy more shares because they'll rise against other assets such as gold or bonds; conversely, if stocks are sinking (or rising), then investors should sell their holdings because they'll fall against other assets such as gold or bonds.
The theory was developed by Charles Dow, who claimed to have invented this methodology in 1896.
The theory was developed by Charles Dow, a journalist and banker who claimed to have invented this methodology in 1896. Dow was also a statistician and philosopher, mathematician, trader and speculator.
Dow's idea of the average price per share came out of his work with Henry Clews (1864-1916), founder of the New York Times. They had been discussing how to determine how many shares traded hands during any given period—and thus what would be considered "the market." Their solution was simple: look at all stocks listed on exchanges; divide them into three groups: large firms or corporations trading at higher prices than smaller companies; smaller firms or corporations trading at lower prices than large ones; then take an average price for each group based upon its total number of shares traded during that month.*
The theory is based on the concept of time, with today's index being a "snapshot" of the market at that moment in time.
The theory is based on the concept of time, with today's index being a "snapshot" of the market at that moment in time.
In other words, it's not just about how much money you have or don't have—it's also about what you've done with your money and where it has gone over time. If something happens that affects one area but not another (like a stock market crash), then there will be an immediate impact on how much cash you have available for investment purposes.
The concept behind this theory is simple: if everything else remains constant (such as inflation), then even though our purchasing power may decrease overall due to higher prices due to inflationary pressures...we can still make profits because our dividends grow faster than inflation!!
The Dow Theory considers six factors that are used to make predictions about future movements in stock prices for an index, such as the Dow Jones Industrial Average.
The Dow Theory considers six factors that are used to make predictions about future movements in stock prices for an index, such as the Dow Jones Industrial Average. These factors include:
*Change in volume over previous periods
* Change in open interest over previous periods
*Change in high-low range over previous periods (the high-low range is a measure of volatility)
*Relative strength (a measure of how much momentum there is behind an asset price)
*Weighted volume - This is calculated by multiplying a security's current market capitalization by its average daily trading volume during the last three years.
If you're interested in learning more about this concept check out our article here: http://www.investopedia.com/articles/markets/07/weightedvolume.asp
The first factor is change in volume over previous periods (this is called historical volatility). It is calculated by dividing the total daily volume of shares traded by their average price multiplied by 100,000.
The next factor is change in volume over previous periods (this is called historical volatility). It is calculated by dividing the total daily volume of shares traded by their average price multiplied by 100,000. The higher this number, the more volatile the market has been over time; it also indicates how much movement there has been within a given period and where it might be headed next.
The second factor is change in open interest over previous periods (called historical volatility of open interest) which is found by dividing the total number of contracts held on each day by their average price multiplied by 100,000.
The second factor is change in open interest over previous periods (called historical volatility of open interest) which is found by dividing the total number of contracts held on each day by their average price multiplied by 100,000.
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A third factor is change in high-low range over previous periods (called relative strength). This measures the strength of stocks within a given index and compares their performance with those of other stocks within that same index.
Relative strength is the difference between the highest and lowest price a stock has traded at during a given period. It's calculated by dividing the total number of stocks in an index by their average price multiplied by 100.
For example, if we have 10 stocks in our index and they all traded at an average price of $100 per share over three months, then relative strength would be 0%. If one of those same 10 stocks traded at $300 per share during that same time period but its peers did not increase or decrease any more than yours did (i.e., they stayed flat), then relative strength would increase to 100%.
Conclusion
The Dow Theory is an excellent way to analyze the behavior of markets, but there are some limitations. The first limitation is that it only works for certain types of stocks and not all of them at once. Also, the theory does not consider trends in other factors such as earnings or interest rates. However, if you want to know where your investments might go in the future then this could be a good starting point for doing so!
