Random Walk Theory, Definition

Random Walk is an economic theory that market price movements move randomly. The theory holds that price history is not a reliable indicator of future price direction. This assumes an efficient market. The theory also assumes that new information comes to the market randomly. Together, the two assumptions imply that market prices move randomly as new information is incorporated into market prices. The theory implies that the best predictor of future prices is the current price, and that past prices are not a reliable indicator of future prices. If Random Walk Theory is true Technical Analysis of the financial markets is meaningless.

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