Dow Theory

There's the overall average of the DOW 30 stocks over here…and the Dow Jones Transport index over here. Where one goes, generally the other follows.

That is...they are highly correlated in price.

Why? Well, originally the Dow transports were railroads which hauled all the crap that the dow industrials made. So you’d think that one would follow the other. Take a look at a caterpillar crawling.

One half goes forward. And the other follows.

Dow Theory is one of a gajillion black box crystal ball theories that chartists tried to use to predict how the stock market would run in the future, so that they could profit from those predictions.

Like all the other black box theories, they work...sometimes even very nicely for a while with high prediction levels…until they don't.

Related or Semi-related Video

Finance: What is the Dow Theory?11 Views

00:00

Finance allah shmoop what is dow theory Well it's a

00:07

push me pull you index Yeah like you know the

00:11

doctor do little lama thing with the overall average of

00:15

the dow thirty stocks here and the dow jones transport

00:19

index here where one goes well generally the other follows

00:23

that is they are highly correlated in price and one

00:27

is basically an indicator of where the other is heading

00:30

Why Well originally the dow transports were railroads which appalled

00:34

all the crap that the dow industrials made so you'd

00:37

think that one would follow the other And if the

00:40

push me pull you thing didn't work for you well

00:43

take a short look at this caterpillar crawling you know

00:46

like that one part goes forward and then the other

00:48

follows Well dow theory is one of a good gillian

00:51

black box crystal ball theories that charters tried to use

00:55

to predict how the stock market would run in the

00:58

future so that they could profit from those predictions And

01:01

like all other black box theories they work sometimes even

01:04

very nicely for a while with high prediction levels That 00:01:08.293 --> [endTime] is well until they don't No

Find other enlightening terms in Shmoop Finance Genius Bar(f)