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Trends & Market Structure

What Is Dow Theory, in Plain Words

Dow theory is a set of plain observations written around 1900: a market has three trends at once, of months, weeks and days, and the biggest is the one that counts; a move in one index is confirmed only when the other index makes the same move; activity should rise with the trend; and a trend is taken to continue until it has clearly turned. This paper shows you the three trends drawn from the euro's 2025, the idea as the tide, the waves and the ripples, the Dow and the Nasdaq making new highs nine days apart on the daily chart, and the Volumes bars on your platform.

Difficulty
Intermediate
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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Three trends at once

Dow theory is a set of observations about markets written by Charles Dow, the founder of the Wall Street Journal, around 1900. The first is that a market has three trends at once. The euro against the dollar in 2025 had a primary trend of eight months, up from 1.01771 to 1.19189; inside it a secondary trend of one month, down from 1.18295 to 1.13916; and inside that minor trends of a few days each, such as the week of 17 to 24 July. Dow's point was that the primary is the one that counts, and the other two live inside it.

The tide, the waves and the ripples

The picture is Dow's own. The tide is the primary trend, and it takes months to come in or go out. On the tide ride the waves, the secondary trends, each a few weeks long and often running against the tide for a while. On the waves ride the ripples, the minor trends, a day or a few days each. All three are on the chart at the same moment. Dow's advice was to read the tide, to expect the waves, and to let the ripples be.

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