In the United States, the stock market has existed for over 100 years, with a relatively long history. More than a century ago, there was a professional investor on Wall Street named Charles Dow. Throughout his years of stock investment, he continuously observed, analyzed, and studied the rises and falls of the market. Charles Dow's diligent research into the stock market at that time aimed to uncover the reasons and timing behind market fluctuations—why the market rises at certain times and falls at others, and when these movements would occur. Charles Dow was convinced that if he could find these answers, he could certainly make a fortune by trading stocks on Wall Street. In fact, his belief later proved correct. He truly managed to find answers to these questions.
Through meticulous research and analysis, along with continuous data collection, Charles Dow developed a theory that the stock market follows patterns. The major trends of the stock market's rises and falls are like tides, with both ebbs and flows. When the market rises, it resembles the surging waves of a rising tide; when it falls, it resembles the receding waters of an ebb tide. Yet, whether rising or falling, there seems to be a pattern. Investors who can grasp this pattern will succeed in the stock market, while those who fail to do so and invest blindly are bound to lose.
Charles Dow believed that the stock market's fluctuations follow an identifiable pattern, and mastering this pattern could yield unlimited profits in the market. His personal investment achievements were highly successful, and the profits he earned on Wall Street made him a powerful figure, a wealthy stock tycoon who moved in high society. His ability to amass such enormous profits on Wall Street proved his theory that the stock market's movements follow a discernible pattern was correct.
Charles Dow frequently published his views in major newspapers and made predictions about stock market trends. At the time, his forecasts were remarkably accurate, garnering increasing attention from investors. His methods for analyzing stock market trends were later systematized and refined by his successor, William Peter Hamilton, into a coherent theory of the stock market, which was then further developed. This theory became known as the Dow Theory, which has now existed for over 100 years.
Charles Dow is the father of "technical analysis." In the investment world, there are two major types of analysis: fundamental analysis and technical analysis. Fundamental analysis of stocks involves examining the broader political and economic landscape, particularly economic factors such as business cycles, consumer power, unemployment rates, gross national product, economic growth rates, etc., followed by analyzing the rise and fall of different industries and the financial conditions of individual companies, including profitability, dividend yields, price-to-earnings ratios, management methods, and corporate investment plans. Technical analysis, on the other hand, is what is now referred to as the "chartist school." Charles Dow was the first to record stock market movements with pen and paper and use these records to predict market trends. Although his chart analysis methods differed significantly from modern techniques, and modern stock chart analysis has advanced considerably, the chartist school of analysis still traces its origins back to Charles Dow.
Later, Dow founded The Wall Street Journal to share his stock market predictions with readers. To this day, The Wall Street Journal remains one of the most authoritative financial newspapers in the United States, specializing in stock market analysis.
Charles Dow tested his personally developed analytical methods and found them to be correct, feasible, and capable of systematically understanding the stock market's operations. His views on the stock market were later accepted and recognized by all stock investors. To this day, no one has dared to claim that Charles Dow's stock market analysis methods are fundamentally flawed.
Dow Theory can be considered the progenitor of all stock market theories. Starting with this theory, various professional investors began specializing in stock market research, creating one theory after another. However, no matter how sophisticated or accurate later stock market theories became, none could deviate from the analytical framework of Dow Theory. It can be said that Dow Theory is the first theory in the realm of stock market investment, and Charles Dow is the founding father of stock investment analysis.
Because Charles Dow had already gained a deep understanding of the stock market over a century ago, conducted systematic analyses, and achieved remarkable success in stock trading, the U.S. stock market index, the Dow Jones Industrial Average, was named after him. This demonstrates how crucial Dow Theory is to stock investors.
Dow Theory is the earliest among all stock market theories and remains the most influential and important one.
