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Reviews of Dow Theory Unplugged: Charles Dow's Original Editorials and Their Relevance Today

From the Market Technicians Association's May 2009 Technically Speaking publication:

Reviewed by Mike Carr, CMT

The tenets of Dow Theory are well known to all market technicians:

1. The averages must confirm each other.

2. The averages discount everything.

3. The market has three trends.

4. Major tends have three phases.

5. Volume must confirm the trend.

6. A trend is assumed to be in effect until it gives definite signals that it has reversed.

The theory is known mostly from the sixteen Charles Dow columns published by S. A. Nelson in his 1902 book, The ABC of Stock Speculation. In Dow Theory Unplugged, 220 of Dow’s original columns are presented, organized around the six tenets identified above. The opportunity to read Dow’s contemporaneous thoughts offers insight into the Theory, and the market itself at the turn as the twentieth century dawned. The book also includes charts of the indexes from the timeframe when Dow was writing which allows analysts to see what Dow saw and develop a feel for applying the Theory.

Charles Carlson contributes the introduction to the book and addresses the criticisms of Dow Theory and provides an overview of the academic studies which demonstrate that the Theory works. Covering the longest time span, Ned Davis Research found that following the Theory would have led to average annual gains of 8.9 percent a year from 1900 through March 2008. A buy-and-hold strategy would have resulted in gains of 5.4 percent per year.

Richard Russell writes on the history of the Dow Theory. He takes readers along the well known path from Dow to William P. Hamilton to Robert Rhea. He also provides background on E. George Schaefer who inspired some of Russell’s own work.

Dow’s editorials are organized into section related to each major tenet. Readers are given a coherent roadmap to think like Dow. Paul Shread, CMT, offers a short introduction to each section. He concisely summarizes the principle and highlights other important aspects related to the application of that tenet.

For those seeking to apply Dow Theory, this book is invaluable. Nowhere else can you read all of Dow’s writings and obtain insights about the interpretation of the Theory from experts in the field. For those seeking an authoritative text on the beginnings of technical analysis, this book presents the writings which formed the cornerstone of the modern field of technical analysis. All serious students of the market need to take advantage of this work to see how Dow thought, and learn about the markets from someone whose ideas have remained profitable for more than 100 years.

From the Midwest Book Review

In today's turbulent economic times, the need to re-examine market theory from the ground up is more critical than ever. Dow Theory Unplugged: Charles Dow's Original Editorials & Their Relevance Today is the most complete collection of the writings of Charles Dow (co-founder of the "Wall Street Journal" and the Dow Jones Indexes, who developed the basic means for monitoring markets that have been in use for a century), economic pioneer and genius of his era. Organized by topic around the six modern tenets of Dow Theory, Charles Dow's editorials remain relevant for twenty-first century traders, market analysts, and economists. Additional analysis from a modern perspective by expert contributors Richard Russell, Charles Carlson, and Paul Shread round out this "must-have" for college libraries and dedicated market theorists.