DOW Theory in Assessing Equity Share Price Movement

Abstract

An endeavor to sketch the kick off point of technical analysis would ferociously lead to Dow Theory. Despite more than 100 years old, Dow Theory continues to be the foundation of technical analysis. Dow Theory stands upon the philosophy that the equity share price reflects every significant factor which affects volume of trade, exchange rates, commodity prices, etc. In other words, the daily closing price demonstrates the psychology of all players associated with a particular marketplace. The aim of the theory is to determine the changes in the movement of the market. In view of above, the current study is aimed to revisit the effectiveness of Dow Theory in assessing stock price movement. Though Dow Theory has some weakness, it always important to an analyst who follows technical analysis. Essentially, Dow Theory is the idea of emotions in the marketplace, which remains the components of market trends. The study concludes that, the basic areas of Dow Theory continue to stay functional and applicable to variety of situations.