NYSE Trader Explains How Dow Theory Works

Earlier this year Dow Theorists were looking at transportation stocks or "trannies" and saying it was a good time to buy.

The idea is that the durability of a rally depends on the strength of stock indexes. When the Dow Jones Industrial Average and Dow Transportation Average move in tandem, depending on the direction, they signal a buy or a sell.

The idea has six underlying principles.

Mark Newton of Greywolf Equity Partners walks us through the basics of Dow Theory:

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