fundamental analysis and he moves into the area of technical analysis.
Technical analysis
Technical analysis is the study of past price movements with the goal to predict future price movements from the past. In his book ``The Stock Market Barometer'' (1922) William Peter Hamilton laid the foundation of the Dow Theory, the first theory of chart readers. The theory is based on editorials of Charles H. Dow when he was editor of the Wall Street Journal in the period 1889-1902. Robert Rhea popularized the idea in his 1930s market letters and his book ``The Dow Theory'' (1932). The philosophy underlying technical analysis can already for most part be found in this early work, developed after Dow's death in 1902. Charles Dow thought that expectations for the national economy were translated into market orders that caused stocks to rise or fall in prices over the long term together - 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. This led to the existence of the Dow-Jones Industrial Average (DJIA) in May 1896 and the Dow-Jones Railroad Average (DJRA) in September 1896.The Dow Theory assumes that all information is discounted in the averages, hence no other information is needed to make trading decisions. Further the theory makes use of Charles Dow's notion that there are three types of market movements: primary (also called major), secondary (also called intermediate) and tertiary (also called minor) upward and downward price movements, also called trends. It is the aim of the theory to detect the primary trend changes in an early stage. Minor trends tend to be much more influenced by random news events than the secondary and primary trends and are said to be therefore more difficult to identify. According to the Dow Theory bull and bear markets, that is primary upward and downward trends, are divisible in stages which reflect the moods of the investors.
The Dow Theory is based on Charles Dow's philosophy that ``the rails should take what the industrials make.'' Stated differently, the two averages DJIA and DJRA should confirm each other. If the two averages are rising it is time to buy; when both are decreasing it is time to sell. If they diverge, this is a warning signal. Also the Dow Theory states that volume should go with the prevailing primary trend. If the primary trend is upward (downward), volume should increase when price rises (declines) and should decrease when price declines (rises). Eventually the Dow Theory became the basis of what is known today as technical analysis. Although the theory bears Charles Dow's name, it is likely