The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

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the hAnDbook of teChnICAl AnAlysIs

So, are the markets following a random walk? As we already know, the mar-
kets are driven by perception and expectation and not by random acts of buying
and selling. It is totally inconceivable that all participants invest in the markets in
a purely random fashion, completely unencumbered by cost, emotions, psychology,
and biases. As we already know, market participants tend to react in a highly pre-
dictable manner time and time again. It is the author’s opinion that random walk is
simply not a true representation of everyday market action. See Figure 1.30.


real‐World Discounting


In the real world, markets overreact and there is insider activity. With insiders
buying and selling, prices adjust to reflect this information. See Figure 1.31. Once
the new bullish or bearish information is released, the insiders would in fact be
liquidating positions in profit, selling off the shares to the public.


fIgure 1.30 Random Walk, EMH, and Their Implications.


fIgure 1.31 Insider Activity Impacting Market Action.

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