A Tale of Two Legends of Technical Analysis (1) – Charles Henry Dow

The first is Charles Henry Dow, born in Sterling, Connecticut on November 6, 1851. He was a journalist who initially wrote for publications in Rhode Island specializing in detailed regional historical articles. As a 29 year old, in1880, he moved from Providence to New York to report on business and finance.

His great achievement was in enunciating in his editorials for the Wall Street Journal, which he founded, astute observations about the movement of stock prices and their relationship with other business activity as shown in the railroad average. Despite his journalistic skills, and the importance of his comments, he never wrote a book, and it was left to others to collate his writings into formal Dow Theory and to publish it. He died at a somewhat youthful 51 years of age on December 4, 1902.

It was his observations that formed a central plank in the new discipline of technical analysis subsequently emerging in the early 20th century. He was a man of integrity. He warned his analysts to avoid biased favourable reporting for their own gain, and would publish the names of companies that were reluctant to provide profit and loss reports. He did not capitalize on his observations for personal gain.

His journalistic colleague Edward Davis Jones who had worked with him In Providence, and was a drop out from Brown University, joined him when requested, in New York. His great talent was in adroitly analysing company financial reports; he too refused to slant his comments to promote company stock prices. The two men in 1896 devised the Dow Jones Industrial Average which tracked the average closing price of twelve leading industrial stocks. When both the Dow Jones Industrial and an average of railroad stocks introduced in 1897, reached new highs, it confirmed a bull market.

Dow Theory has passed the test of time. It is still the primary consideration in all technical analysis.

I’m indebted to Wikipedia for the information above.



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