Introduction to Dow Theory
Figure 2.3 showed the NYSE Composite Index resuming its primary bull market
around the beginning of 2011 after breaching the peak formed during the forma-
tion of the secondary reaction. Figure 2.12 depicts a 75 percent secondary reac-
tion on the Dow Jones Industrial Average. The primary bull market resumes its
uptrend upon breaching the highest peak formed during the secondary reaction.
Figure 2.13 depicts various secondary reaction retracements in the EURUSD.(3) the minor trend The minor trends are not regarded as important in Dow
Theory. In fact, Hamilton commented in his book, The Stock Market Barometer,
that “The stock market is not logical in its movements from day to day.”
Minor trends usually last from days to weeks. They are sometimes referred to
as the ripples on the waves.
Under Dow Theory, the day’s erratic fluctuations represent market noise and
no investment decision should be based on such erratic activity, with the exceptionfIgure 2.12 Primary Bull Market Resuming Its Uptrend after Breaching the Highest
Peak of the Secondary Reaction on the Dow Jones Industrial Average.
Courtesy of Stockcharts.comfIgure 2.13 Secondary Reactions on the EURUSD Daily Chart.
Source: MetaTrader 4