Hypothesis 1:

Manipulation: Daily fluctuations in indices may be subject to manipulation, and secondary reactions may also be influenced to some limited extent, but the primary trend absolutely cannot be manipulated.

Hypothesis 2:

Market indices reflect all information: All hopes, disappointments and knowledge of everyone who understands financial matters are reflected in the daily closing price fluctuations of the "Dow Jones Railroad Index" and "Dow Jones Industrial Index"; for this reason, market indices will always appropriately anticipate the impact of future events (except for God's will). In case of natural disasters like fires or earthquakes, market indices will also quickly assess them.

Hypothesis 3:

This theory is not infallible; "Dow Theory" is not a foolproof system that can defeat the market. To successfully use it to assist speculative activities requires in-depth research and objective comprehensive judgment. Never let wishful thinking dominate reasoning.

First Axiom: Market behavior discounts everything

Second Axiom: Market behavior moves in trends

Third Axiom: History repeats itself.

Theorem 1:

Dow's three movements: Market indices have three movements that can all occur simultaneously.

The first and most important movement is the primary trend: the overall upward or downward movement called bull or bear market, which may last for years.

The second and most elusive movement is the secondary reaction: it is an important decline in a primary bull market or a rally in a primary bear market. Corrective movements usually last from three weeks to several months.

The third and least important movement is the daily fluctuations.

Theorem 2:

Primary movement: The primary movement represents the overall basic trend, usually called bull or bear market, lasting from less than one year to several years. Correctly judging the direction of primary movement is the most important factor for successful speculation. There is no known method to predict the duration of primary movements.

Theorem 3:

Primary bear market: A primary bear market is a long-term downward movement with important rallies interspersed. It stems from various unfavorable economic factors, and this movement will only end when stock prices fully reflect the worst possible scenario. A bear market goes through three main stages:

First stage: Market participants no longer expect stocks to maintain overinflated prices;

Second stage: Selling pressure reflects deteriorating economic conditions and corporate earnings;

Third stage: Disillusioned selling of sound stocks occurs, with many rushing to cash out at least some stocks regardless of value.

Theorem 4:

Primary bull market: A primary bull market is an overall upward movement with secondary reactions interspersed, averaging more than two years in duration. During this period, as economic conditions improve and speculative activities flourish, both investment and speculative demand increase, thereby pushing up stock prices. A bull market has three stages:

First stage: People regain confidence in future prosperity;

Second stage: Stocks react to known improvements in corporate earnings;

Third stage: Speculative fever intensifies and stock prices become clearly inflated - this stage's price rise is based on expectations and hopes.

Theorem 5:

Secondary reactions: For this discussion, secondary reactions are important declines in bull markets or important rallies in bear markets, typically lasting from three weeks to several months; during this period the retracement ranges from 33% to 66% of the previous primary movement after the last secondary reaction ended. Secondary reactions are often mistaken for changes in primary trends, because the initial movement of a bull market may obviously just be a secondary reaction in a bear market, while the opposite situation occurs after a bull market tops.

"Dow Theory" is not an absolutely comprehensive market forecasting method, but no serious speculator should ignore this knowledge.

Many principles of "Dow Theory" are embedded in the daily language of "Wall Street" and market participants, but most people don't realize it.