Random Walk Theory

Categories: Strategies,

The random walk theory holds that it is futile to try to predict changes in stock prices. Advocates of the theory base their assertion on the belief that stock prices react to information as it becomes known, and that, because of the randomness of this information, prices themselves change as randomly as the path of a wandering person's walk.This theory stands in opposition to technical analysis, whose practitioners believe you can predict future stock behavior based on statistical patterns of prior performance.