dow
Price discounts everything
The rule
The price already holds every known fact, hope and fear. The chart is the crowd's own short summary of all it has learned.
Where it flips
If you treat 'it is all in the price' as gospel, it becomes an excuse to never study the business. The fix is to remember: the chart holds only what is public and already traded. Fresh news, or a thin, low-volume stock, can leave big facts out of the price.
Dow said the closing price is not one person's guess. It is the settled result of every buyer and seller acting on what they know. That is why a chart is worth reading. It squeezes earnings, rumour, mood and money-flow into one line. But the key word is 'known'. The chart says nothing about a fact the market has not yet seen. A price that holds all public news can still be shocked by hidden or new news.
A worked example
A mid-cap trades sideways for weeks while a quiet big investor buys before results. The chart shows only the calm range. That buyer's news is not yet known to the crowd, so it is not yet in the price. When results come out, the big jump is the market catching up on what it could not see. [illustrative]
How to spot it
- ·a price that has quietly moved before any news you can find
- ·a calm chart hiding steady buying or selling underneath
- ·the claim that studying the business is pointless because 'it is all in the chart'
Charles Dow · Dow Theory