One sentence: The market doesn't rise and fall chaotically; it has its own rhythm and rules. Old Charles Dow figured this out over 100 years ago, and people around the world trading stocks and crypto are still using his methods today.

Who is this old guy?

Charles Dow, founder of the Wall Street Journal, father of the Dow Jones Index.

 

He never wrote a big book called Dow Theory; he just wrote editorials in the newspaper every day.

 

After his death, later generations compiled his views into a theory that became the foundation of technical analysis.

Dow Theory's 6 Iron Laws: Memorize them and you're half a seasoned leek

1. The market reflects everything

All news (good or bad, wars, pandemics, Musk's tweets) is already baked into the K-line charts.

 

Don't think you're smarter than the market; price is truth.

2. The market has three types of trends

  • Main trend (bull or bear): Cycles every few years, feast until you're stuffed
  • Secondary trend (pullback / rebound): Weeks to months, catch your breath after feasting

  • Minor trend (noise): Days to hours, ignore it, don't take it seriously

     

    Remember: Those who follow the main trend prosper; those who go against it perish.

3. Main trends have three phases (bull market version)

  • Accumulation phase: Smart money quietly builds positions, while retail investors are still cursing "the bear market has no bottom"
  • Public participation phase: Media hypes it up, leeks swarm in, prices skyrocket, FOMO kicks in

  • Distribution phase: Smart money quietly sells off, while retail investors are still shouting "$1 million isn't a dream"

     

    Bear market is the reverse: Smart money exits first → retail panics and cuts losses → smart money buys the dip.

4. Volume must confirm the trend

Rises need volume; low-volume pull-ups = fake

 

Falls need volume; low-volume drifts down = not over yet

 

Breakouts without volume support are fake nine times out of ten.

5. Trends remain valid until clearly reversed

Don't call tops lightly in bull markets or bottoms in bear markets.

 

Reversal signals unclear? Hold on, don't scare yourself.

 

Most people die on those six words: "I feel like it's reversing."

6. Indices confirm each other (a bit outdated now)

Dow said back then: If the industrial index rises, the transportation index must follow for it to be a real bull.

 

In the digital age now, this doesn't work as well, but the idea remains: If one sector rises, related sectors must follow, or it might be a fakeout / fake rally.

How to use Dow Theory in the crypto world?

BTC rises from $30K to $100K → Main trend bull market, don't rush to call the top

 

Midway pullback to $80K → Secondary trend adjustment, smart money adds positions

 

Volume shrinks + media hypes "$1 million isn't a dream" → Distribution phase, consider reducing positions

 

Sudden massive volume dump + panic sentiment → Possibly entering bear market accumulation phase, prepare to buy the dip

Last words for all you K-line watchers

Dow Theory isn't divine, but it tells you one thing:

 

The market is always right; your emotions are wrong.

 

Don't fight the trend,

 

The trend is your friend,

 

Until the moment it stabs you in the back,

 

You've got to recognize it right away, then find a new friend.

 

Over 100 years have passed,

 

Human nature hasn't changed, greed and fear haven't changed,

 

Dow Theory will never go out of style.

 

Study well, live well.