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A Technical Approach To Trend Analysis: Practical Trade Timing for Enhanced Profits by Michael C. Thomsett

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Other Price Theories: RWH

Closely associated with EMH is the random walk hypothesis (RWH). In this concept of the market, all changes in stock prices are entirely random and cannot be forecast with any reliability. If the EMH rationale is accepted, current prices reflect all known information. Thus, any further movement in price is subject to evolving information, but the direction of movement is entirely random.

However, if the market is truly random, trends may not develop. Prices would tend to move in a completely 50/50 manner, moving upward half of the time and downward the other half. The examination of any stock chart over time reveals that this does not occur. Trends for indexes, as well as for individual stocks, develop, move, and continue ...

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