Dow theory if formulated by Charles H Dow who also formed the Dow Jones Industrial Average and Dow Jones Rail Road average. This theory is based on the tenet that Market discounts everything. Instead of looking at the performance of a company, this theory advises looking at the price movement along with volume. This theory is the basis of all technical analysis. It looks at the market movement and marks the significant tops and bottoms. Whenever there is a movement from Higher bottom to Higher top, will high volume, that defines a bullish trend. We should get into a long position. Whenever there is a movement from lower top to lower bottom, it defines a bearish trend and we should get into a short position.
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