The basic concepts behind Dow Theory were developed by Charles Dow in the late 1800s. He noted that while stock prices showed a significant amount of apparent random price movements, they did display a tendency to move in a similar fashion with each other in a broad trending like behavior. Charles Dow developed the idea of tracking the market by using an average of the largest industrial stocks and the largest railroad stocks (transport stocks nowadays). He further theorized that if the industrial stocks turned bearish then the railroad (transport) stocks that transported the goods would also turn bearish.
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