Chapter 3 Technical Trading Rule Performance
in Dow-Jones Industrial Average Listed Stocks
3.1 Introduction
In 1882 Charles H. Dow, Edward D. Jones and Charles M. Bergstresser started Dow, Jones & Co., publisher of the ``Customer's Afternoon Letter''. This was the precursor of ``The Wall Street Journal'', which was founded in 1889. In those early days trading was dominated by pools and prices were subject to spectacular rises and declines. Trading was mainly done on inside information. Stocks were considered to be for gamblers, raiders and speculators. Charles Dow discerned three types of market movements. First there are the daily actions, which reflect speculators' activities, called tertiary or minor trends. Second there are the secondary or intermediate trends, that is short swings of two weeks to a month or more, which reflect the strategies of large investment pools. Charles Dow considered the first two movements to be the result of market manipulations and he advised not to become involved with any kind of speculation, because he believed this was a sure way to lose money. Third, he discerned four-year movements, the primary or major trend, derived from economic forces beyond the control of individuals. Charles Dow thought that expectations for the national economy were translated into market orders that caused stock prices to rise or fall over the long term - usually in advance of actual economic developments. He believed that fundamental economic variables determine prices in the long run. To quantify his theory Charles Dow began to compute averages to measure market movements.93