Dow Theory

Dow theory is named after the 19th century editor of the Wall Street Journal, Charles Dow. It is often used as an indicator of when a bear market may be about to start.

The idea is that when a downward trend in the Dow Jones Industrial average is confirmed by a downward trend in the Dow Jones Transportation average, firms are no longer shipping goods between each other, which indicates slowing activity and means that a new bear market has begun.

• See Tim Bennett’s video tutorial: What is an index?