Before indicators, before candlesticks, there was Dow Theory. Almost everything traders believe about trends traces back to a set of principles laid out over a century ago.
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Dow Theory, drawn from Charles Dow's writings around 1900, is the bedrock of modern technical analysis. Most of what traders take for granted about trends — that they exist, that they persist, that volume matters — is Dow Theory, even when nobody names it.
Markets move in trends with three phases
Dow held that prices move in identifiable trends, and that a major trend unfolds in three phases: accumulation (smart money quietly building positions), public participation (the trend becomes obvious and the crowd piles in), and distribution (smart money sells to latecomers) (market cycles, smart money vs retail).
Confirmation and volume
Two of Dow's principles still guide traders: a trend should be confirmed across related averages/markets (a move isn't trusted if the pieces disagree), and volume confirms the trend — a healthy trend has volume expanding in its direction (volume and trend). Divergence between price and volume is an early warning.
Dow Theory isn't a strategy — it's the grammar. Every trend-following idea since is a dialect of "the trend persists until it clearly doesn't."
A trend persists until it reverses
Perhaps the most-used principle: a trend is assumed to remain in force until a clear reversal is confirmed — you don't fight it on a hunch (reversal vs continuation). That's the ancestor of "the trend is your friend" and of higher-high/higher-low structure (trend following). Dow Theory is a lens, not a signal generator — it tells you what to respect, and a rules-based system then acts on those structures mechanically (mechanical vs discretionary).
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NoVo is a software tool for market analysis, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.
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