Chapter 4. The Technical Analysis Controversy

Chapter Objectives

After studying this chapter, you should have a good understanding of

• The basic principles of the Random Walk Hypothesis (RWH)

• The historical distribution of stock market returns

• The basic principles of the Efficient Markets Hypothesis (EMH)

• The pragmatic criticisms of technical analysis

• How technical analysts respond to critics

Chapter Summary

Do Markets Follow a Random Walk?

A random walk occurs when future price movement cannot be predicted by observing past price movement. If prices move in a random fashion, then no underlying patterns can exist in stock prices.

Sornette has studied periods in the stock market when successive losses, referred to as drawdowns, have occurred. ...

Get Study Guide for the Second Edition of Technical Analysis: The Complete Resource for Financial Market Technicians now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.