Briefly explain how the “Dow Theory” views the movement of the market prices of shares traded on a stock exchange.

CPA-Financial-Management-Section-3 Revision kit

Dow theory
This theory views the movement of market prices occurring in three categories:

• Primary movements
These are called bull and bear markets. Bull markets are where prices move in an upward manner for several years. Bear markets , on the other hand, are where prices move in a downward manner for several months or a few years.

• Secondary movements
These are up and down movements of stock prices that last for a few months and are called corrections

• Daily movements
These are meaningless random daily fluctuations. These are generally ignored during charting of indices.

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