Listen to a Business English Dialogue About Dow theory
Emily: Hi Eugene, have you heard about the Dow theory in finance? It’s a theory that suggests the stock market trends can be analyzed and predicted based on the movements of the Dow Jones Industrial Average and the Dow Jones Transportation Average.
Eugene: Oh, interesting. How does the Dow theory work?
Emily: Well, according to the Dow theory, if both the Industrial and Transportation averages are moving in the same direction, it suggests a healthy and sustainable trend in the stock market.
Eugene: Are there any key principles of the Dow theory?
Emily: Yes, one key principle is the idea of confirmation, where a trend is considered valid only if both averages confirm it by moving in the same direction.
Eugene: How do investors use the Dow theory in their analysis?
Emily: Investors use the Dow theory to identify trends and potential reversals in the stock market, helping them make informed decisions about buying or selling stocks.
Eugene: Are there any criticisms of the Dow theory?
Emily: Yes, some critics argue that the theory is too simplistic and doesn’t account for other factors that can influence stock market movements, such as economic indicators and geopolitical events.
Eugene: Can you give an example of how the Dow theory might be applied in practice?
Emily: Sure, if the Industrial Average reaches a new high and is followed by a new high in the Transportation Average, it could signal a bullish trend in the market according to the Dow theory.
Eugene: Thanks for explaining, Emily. The Dow theory seems like a useful tool for analyzing stock market trends.
Emily: You’re welcome, Eugene. It’s one of many tools investors use to interpret market behavior and make informed investment decisions.