# Charles Dow

He couldn’t know it at the time, but Charles Dow nearly 50 years ahead of Claude Shannon’s information theory laid out a framework for communication via stocks price that included encoding, decoding, and error correction. Dow’s framework enabled investors to translate the analog wave functions of stock market activity, into *chunks* of digital information encoded by real world conditions, in much the same way a television or radio receives and decodes encoded information today.

*Classical Dow’s trendline algorithm translates Highs and Lows into*

* Better or Worse and is uses market conditions as a metalanguage
to frame the underlying fundamental and economic conditions.
Note the Analog signal (above) to digital signal (below).*

Using trend lines to identify wave functions Dow formulated a process of removing the complexity and noise from the waves by converting them into a *“tri-nary”* alphabet that corresponds to various phases of market activity. What Dow Theory implies is that human perception of economic and fundamental conditions can be reduced to a three symbol code of **Better, Worse or Same**. This alphabet **(BWS)** is then paired with the actions of **Buying, Selling or Holding (BSH)** which it then transcribed into the markets in the form a series of highs and lows that by comparison are **Higher, Lower or Flat (HLF).**

**Market mechanism for metabolization**

**Analogy; ****Biological mechanism for metabolization **

The modern implication of Dow Theory is that the markets are a communication channel that not only convey digital information, but also send digital instructions. The information you receive is **Better, Worse or Same (BWS)** the instructions you get are **Buy, Sell or Hold (BSH)**. Translation occurs through various algorithms such as Dow Theory Trend-lines or any other form of technical analysis that uses comparison repertoire—they can be… **Above, Below or Equal (ABE)** or **Greater-than, Less-than, Equal-to (><=) Numerical (1, 0, -1) **all synonymous with and dialects of the code **(BWS)**.

** Analogy; Market Abstraction Levels and Programing Abstraction Levels**

*Notice that on the lowest level of market languages is the “Object Language”*

* of Game theory and other concepts that are then discussed as an abstraction using*

* economics and fundamentals, and on to higher levels of abstraction.
*

*The Game Theory Level called Learning Curve would correspond to the
three hardware layers in the computer programming diagram.*

** **

In modern terms Classical Dow Theory is a metalanguage use to convey perceptions of real world conditions, transcribed into the markets via the mechanism of buying and selling. A metalanguage is the construction of one language to discuss another, in this case the discussion of “actual conditions” using the object language of economics and fundamentals is encoded as **(Better Worse Same).** **(BWS)** is then paired with the action of **(Buy Sell Hold)**, and transcribed into the market as price patterns. The price pattern can now be viewed as a modulated carrier wave with an embedded signal which we will discuss using * Quantum DowTheory™*.

Later the reading of economics and fundamentals from price patterns occurs using the metalanguage of technical analysis, which translates market activity by identifying highs and lows as **(Higher Lower Flat)**. This structure is then mapped back to **(Better Worse Same)** as the metalanguage of “market conditions”. Finally market conditions are read and paired with the instruction of **(Buy Sell Hold)**.

Thus we begin by viewing Dow Theory as an encoding/decoding system that maps that an alphabet of symbols from one dialect to another in order to facilitate the computation, transmission and storage of data.

**QUANTUM DOW THEORY**

Candlestick Base-Pairs STEP1

Candlestick Base-Pairs STEP1

**CLASSIC INTERPRETATION; **Using Dow theory to interpret candlestick progression **requires two (nodes) the highs and lows of two candlesticks** hence the name “

*base pair”.*Thus the comparisons are…

- High to high…
- Low to low

**EXPANDED INTERPRETATION; **In actuality however, there are four nodes between both candlesticks thus we can add…

- Open to open…
- Close to close

**EXTRAPOLATED INTERPRETATION; **Also there are three additional sets of comparisons to make on each candlestick individually consisting of three intra-period or “internal” comparisons.** **

- Open to high and low…
- Close to high and low…
- Open to close

As a result Quantum Dow Theory starts with 10 comparisons of 7 relationships per base-pair, with each of the 10 comparisons displaying three possible valuations…up, flat, or down, or (1, 0, -1).

Hence the maximum value of a base-pair = 10 or (4 + 3 +3).

Likewise the minimum value of a base-pair = -10 or (-4 + -3 + -3).

Therefore the entire range of values = 10 – (-10) + 1 or 21

The total value of the base-pair is always assigned to the leading candlestick

The benefit under this framework, is that Quantum Dow theory reduces the huge array of sometimes vague candlestick patterns to 21 quantifiable states. What makes this procedure drastically different than the eastern method is that** “the pattern is a value” **not a configuration.

So despite the fact that multiple base-pair patterns can have a measurable state of -6 for example. What’s important is the valuation of the composition not its nuances. In addition unlike the eastern interpretation, the quantum Dow approach places much less emphasis on discrete patterns and **much more emphasis on how the individual and combined states of the base-pair “random-walk”***,* *and* **on the statistical likelihood, or “non-randomness” of certain segments of the sequence.**

## NEXT; QDT STEP2…

A RANDOM WALK (UP) WALL.ST

Isn’t it obvious… use Quantum Dow Theory’s valuation of base-pairs to create multiple random walks as an *“internal confirmation”*. This is the *“Embedded signal”* inside the modulated *“Carrier signal”* that is price.