So, we have covered the 5 basic principles so far and most of them are pretty straightforward…I mean, none of them involved physics…until now.

The sixth principle of the Dow Theory involves Newton’s first law of motion, which holds that an object in motion continues to move in the same direction until an external force acts upon it.

As you might have already guessed, the object in motion that we are discussing here is the trend. So, this means that a market following a trend will continue to do so until something gets in the way.

In this case, it is most likely to be information about the asset that would probably cause a change in the trend. If the information is positive, it could reverse a prevailing downtrend; if it's negative, it could reverse a prevailing uptrend.

The higher the impact the information can have, the more likely it is to cause a reversal. On the other hand, less impactful information may merely cause a temporary pause in the trend.

As a result, sometimes it can be very difficult to gauge whether it’s a reversal signal or merely a correction. In the early stages, it may not be clear whether it is a correction or a reversal, but as time goes on, it will become obvious.

This is why dozens of tools are available to traders, such as support and resistance studies, price patterns, trendlines, oscillators, and moving averages, among many others.

And that concludes the 6 principles of Dow Theory.