2.1 A Brief History of Technical Analysis

Theory and History is the largest CMT Level I knowledge domain, at 38% of the 2026 Program Guide weighting. The first unit in that domain is not a trivia list. It is the story of how market observers turned recorded prices into a discipline: who published prices earliest, who built the U.S. stock averages that made market-wide trend reading possible, and who later organized those ideas so they could be taught and tested.

This OpenExamPrep chapter is independent study material for CMT Level I topics. The CMT Association owns the Chartered Market Technician (CMT) designation and administers the CMT Program. OpenExamPrep does not claim partnership with the Association, and these pages are not an Association publication.

Why technicians start with history

Technical analysis (TA) is the study of market-generated data — primarily price, volume, and related series — to describe trend, risk, and crowd behavior. That definition only works if prices were recorded, published, and compared over time. The history unit therefore asks three exam-ready questions:

1. Who created and later organized the concepts now called Dow Theory?
2. Which two stock averages did Dow Jones & Company begin publishing in the 1800s?
3. Which early European and Asian markets already had charted (or systematically recorded) prices?

If you can answer those three with the economic logic attached, you have the unit. Isolated birth years without the logic are a weak exam strategy.

Earliest markets with charted prices

Price recording did not begin on Wall Street. CMT Level I expects you to recall that Europe and Asia already treated prices as a series long before U.S. industrial averages existed.

Europe: Amsterdam and London

Seventeenth-century Amsterdam developed a liquid market in shares of the Dutch East India Company (VOC), chartered in 1602. Traders quoted prices, used forward-style contracts, and argued about rumor versus the tape — the same tension a modern technician still names when saying that price discounts information. In 1688, Joseph de la Vega published Confusion de Confusiones, a description of that market's speculative practices, bull and bear tactics, and the difficulty of reading crowd behavior. You do not need to recite de la Vega's chapters. You do need to recall that Amsterdam is among the earliest European markets for which share prices were observed and written down as a series.

London followed with coffee-house trading and published price lists (brokers' "courses of the exchange") that made English securities and commodities visually comparable from one session to the next. Together, Amsterdam and London show the European root: public prices plus a community of traders who treated those prices as information.

Asia: Osaka's rice market

In Japan, the Dojima Rice Exchange in Osaka is the classic Asian example. Rice was the monetary backbone of the Tokugawa economy. Brokers traded warehouse receipts and, by the eighteenth century, organized rice futures. The exchange is commonly dated to 1697, with shogunate authorization of futures trading in 1730. Munehisa Homma (1724–1803), a Sakata rice merchant associated with that market, is the figure later generations credit with methods that evolved into candlestick charting — reading open, high, low, and close as a visual language of sentiment.

For the exam, pair the continents: Amsterdam (and London) in Europe; Dojima/Osaka rice in Asia. Both cases matter because they had recorded, comparable prices — the raw material of TA — centuries before U.S. industrial averages.

Charles Dow and the two nineteenth-century averages

Charles H. Dow (1851–1902) co-founded Dow Jones & Company in 1882 with Edward Jones and Charles Bergstresser, and he became the first editor of The Wall Street Journal (1889). He did not publish a book titled "Dow Theory." He wrote editorials that treated the stock market as a measurable barometer of business.

Two averages from that newsroom are the Level I facts:

• In 1884, Dow Jones began publishing a railroad average (today's lineage is the Dow Jones Transportation Average). The first version appeared in the Customer's Afternoon Letter and mixed railroad companies with a small industrial component.
• In 1896, Dow Jones began publishing the Dow Jones Industrial Average (DJIA) as a separate industrial list (originally 12 stocks).

Those two series — rails/transports and industrials — are "the two important stock averages that Dow Jones began publishing in the 1800s." They matter because Dow wanted a picture of making goods and moving goods, not a single headline number. The next section turns that pairing into confirmation rules. Here, the history point is simpler: the averages had to exist as published series before anyone could test whether they moved together.

Who created Dow Theory concepts — and who organized them

Keep three principal individuals distinct. The exam language is created and organized, not "who had the most colorful biography."

S.A. Nelson coined the label "Dow Theory" in The ABC of Stock Speculation (1903), after Dow's death. That is a naming fact, not a substitute for Dow, Hamilton, or Rhea. Nelson did not create the industrial average and did not write the later rulebook.

Hamilton is the bridge from newspaper insight to a working method: watch both averages, trust the close, and wait for confirmation. His 1922 book and subsequent WSJ editorials (including the often-cited October 1929 piece on a turn in the tide) showed the method under live market stress. Rhea is the bridge from method to body of knowledge: numbered tenets, definitions of primary, secondary, and minor movement, and a correspondence-course style of instruction that later professional curricula could still recognize.

If a question asks who created the concepts, start with Dow. If it asks who organized them so students could study a coherent theory, start with Rhea, with Hamilton as the essential applicator in between.

Later organizers — from books to a professional home

After Rhea, the wider craft of chart reading was collected in textbooks rather than in WSJ editorials. Richard Schabacker in the 1930s and Robert D. Edwards and John Magee in Technical Analysis of Stock Trends (1948) organized classical chart patterns for a professional audience. Richard Wyckoff organized tape-and-volume reasoning about accumulation and distribution. Those names belong in a history of the profession. They are not fourth co-authors of Dow's original averages, and this unit should not collapse into a roster of every famous technician.

The modern professional home of the CMT Program is the CMT Association. The Association began as informal meetings of technical analysts in New York in 1967. Ralph Acampora, John Brooks, and John Greeley are credited as founders. The original 18 members incorporated the organization as a not-for-profit in 1973 (then the Market Technicians Association; membership later approved the CMT Association name, effective 2017). The Association authorized a certification program in the mid-to-late 1980s; the first CMT charters were awarded in 1989.

Use that timeline to answer "where does the CMT Program live today?" — at the CMT Association — without confusing the Association with any third-party prep publisher.

How to study this unit

Do not build a flashcard deck of birth years. Build three sentences you can write from memory:

1. Prices were charted in Amsterdam and at Dojima before U.S. averages existed.
2. Dow Jones published the railroad average in 1884 and the industrial average in 1896.
3. Dow created the ideas, Hamilton applied them, Rhea organized them, and the CMT Association now houses the CMT Program.

The next section turns those averages into Dow Theory rules: confirmation, the close, and the three movements.