Introduction to the Art and Science of Technical Analysis
- The Semi‐Strong Form: The semi‐strong form of EMH suggests that all in-
formation, once public, is of little use as price would have already adjusted
to the new information making the use of such information unprofitable and
pointless. Market participants would have little opportunity to take advan-
tage of such information. This implies that even fundamental analysis is point-
less and meaningless. - The Strong Form: The strong form of EMH suggests that all information, re-
gardless of whether public or private, would have been already fully reflected
in the current price. Consequently, all forms of analysis and forecasting are
pointless and meaningless.
random Walk
Closely related to the EMH is the concept of Random Walk. Random walk sug-
gests that prices move in a purely random manner and that:■ (^) Past prices do not have any influence on current price
■ (^) Current price has no influence on future price (Markovian condition)
All information is already incorporated into the current price. This would
mean that there is no way whatsoever to forecast future action, and prices are
as likely to go up as they are to go down. This renders all form of analysis and
forecasting pointless and meaningless. Random walk is in a way related to EMH,
insofar as current price represents the current state of all information. In random
walk, prices do not adjust to any new information, unlike in EMH. Its motion is
purely random or stochastic.
fIgure 1.29 A Semi‐Efficient Market Gradually Adjusting to New Information.
Source: MetaTrader 4