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Dow Theory is based on the analysis of the early history rates of the New York Stock Exchange, where it has been already noticed a clear trend towards the simultaneous increase or decrease in the vast majority of the shares. It was noted that most of the courses is bound to the general public in the overall market trend.

Dow theory is based on the assumption that changes in quoted shares are most consistent with the general trends in the stock market. During the bull market, prices of the most shares are increasing, but when there is a bear market – shares mostly lose their values and it is a signal – signal to sell or to buy.

Dow distinguished several types of trends because of their duration:
- Primary trend (base) – usually takes several years;
- Major trend, also known as the primary or long-term trend – takes at least a year or more years (on average 2 to 4 years);
- Secondary trend, also known as medium-term trend – it usually lasts from one to several months.  Secondary trends are subordinated to the original trend;
- Minor trend, also called tertiary or short-term trend – it takes several days to several weeks and it is the part of secondary trend. And in short term it can be signal to buy or to sell.

New York Stock Exchange (NYSE) is the second largest stock exchange of the world, after the NASDAQ stock exchange. Founded in 1817 as the New York Stock & Exchange Board. Its headquarters are in New York at 18 Broad Street, at the corner of Wall Street. Trading of securities takes place entirely electronically. There are about 2800 companies listed on NYSE,  including General Electric, General Motors Corp, IBM or Hewlett-Packard.
Dow Jones Industrial Average (DJIA) – is one of the most important traded securities indexes on the New York Stock Exchange and Nasdaq. This index was created by Charles Dow and Edward Jones. Dow Jones is the oldest active share index in the United States. Currently consists of 30 major U.S. companies. The Dow Jones index was published first time on May 26 in 1896.

The Dow Jones Industrial Average contains the following companies:

* 3M
* Alcoa
* American Express
* AT&T
* Bank of America
* Boeing
* Caterpillar Inc.
* Chevron Corporation
* Citigroup
* Coca-Cola Company
* DuPont
* ExxonMobil Corp.
* General Electric
* General Motors
* Hewlett-Packard
* Home Depot
* Intel Corp.
* International Business Machines
* Johnson & Johnson Corporation
* JP Morgan Chase & Co.
* Kraft Foods
* McDonald’s Corporation
* Merck & Co.
* Microsoft Corporation
* Pfizer
* Procter & Gamble
* United Technologies
* Verizon Communications
* Wal-Mart Stores Inc.
* The Walt Disney Company