We’ve already seen in the first principle that Charles Dow believed that the averages reflect market sentiment, trends, and so on.

But what happens if one index acts completely differently to the other index? How do you know which one better reflects the market?
Charles Dow thought of this, too. That’s why he suggested that the averages must confirm each other.

This means that, for example, if one index is following an upward direction, but the other index is indicating a downward trend, it is misleading, and therefore, no reliable inferences may be drawn.

However, if both indices confirm, we may conclude that the underlying market is trending.

While the indices don’t need to move in the same direction simultaneously, the sooner one index follows the other in the same direction, the clearer it is that a trend has formed.

Although the correlation in the indices doesn’t have to happen simultaneously, a shorter gap is considered as conclusive evidence of a trend.

Moving on to the fifth principle!