After we got some basics clear on ‘What is Technical Analysis’ and cleared some myths on the same, now lets get familiar with the roots of technical.
In 1882, Charles Dow and Edward Jones founded Dow Jones and Company. It is believed by most technical analysts that most theories where founded by DOW and he published his ideas while he wrote for Wall street Journal. Basic ideas of Dow is considered to be the pillars of technical analysis.
Dow was the first person to publish first ever stock market average which consisted of 11 stocks on 3rd July 1884. But after few year in 1897, DOW realized that two separate indices were required to gauge economy and then he constructed a 12 stock industrial average and 20 stocks average. As the Economy expanded, more and more stocks were included in the industrial index to gauge economy better and by 1928 , 30 stocks were included in the index.
Interestingly Dow has never written a book, but he had published his ideas in Wall Street Journal editorials. After his death in 1903, S.A. Nelson, complied everything in one book and it coined the word, “Dow Theory”, which is considered to be a based for learning technical analysis.
There are few basic tenants of the theory which helps to analyze stock and economy at any point of time. I shall discuss in detail on the theory in my next post.