What it means
Its accumulation, public participation and distribution phases are the ancestors of Wyckoff and ICT's Power of 3.
In practice
Almost every modern method of reading trends rests on Dow's observations: an uptrend is a series of higher highs and higher lows, and it stays in force until the sequence clearly breaks.
The idea of three trends at once (a primary trend lasting months or years, secondary reactions against it, and minor daily moves) is the root of multi-timeframe analysis. Confirmation, where related markets should agree, lives on in comparing indices and correlated assets.
What to watch for
Dow theory describes trends; it does not time them. Its signals arrive well after a turn, which suits long-term investors more than short-term traders.
Related terms
3 terms- Higher high and higher lowEach peak above the last and each dip above the last: the definition of an uptrend.
- Wyckoff methodRichard Wyckoff's early 1900s model of accumulation and distribution ranges; his spring is SMC's liquidity sweep.
- Power of 3ICT's idea that a candle forms in three phases: accumulation, manipulation (a false move) and distribution (the real move).