Charles H. Dow

Not a professional trader but the founder of the grammar with which traders have read markets for over a century.

Who he was

Charles Henry Dow never wrote a book nor ran a fund: he did something more durable. In 1884 he compiled the first index of railroad stocks and in 1896 the Dow Jones Industrial Average — the then-novel idea that an average of stocks could measure the market rather than individual names (see market-index). In his Wall Street Journal editorials he wrote down the observations that William Hamilton and Robert Rhea would later organise into Dow Theory.

Contribution

• The market discounts everything — indexes incorporate available information: the starting point of all technical analysis.
• Three movements — primary trend (the tide), secondary (the waves), minor (the ripples): the first taxonomy of trends and timeframes.
• Phases of the trend — accumulation, public participation, distribution: the skeleton Wyckoff would develop into an operating method.
• Confirmation — a signal counts when the indexes (then Industrials and Rails) confirm each other, and volume must confirm the trend.
• A trend remains in force until reversed — the presumption of continuation: the burden of proof lies with the reversal.

What today's students learn from him

1. Before any tool comes structure: rising or falling highs and lows are the primary data; indicators come after.
2. Cross-confirmations (indexes, sectors, volume) are worth more than any isolated signal — what we now call confluence.
3. Telling the tide from the ripples avoids the most common mistake: fighting the primary trend to chase the minor move.

Study path

Related concepts

• trend · swing-high-low
• market-index
• trading-volume
• market-cycle

Links

• trader
• discipline-technical-analysis
• richard-wyckoff — who turned Dow's phases into an operating method