Stock Market and Random Walk Theory

Discussion in 'Technical Analysis' started by lionfish42, Jul 14, 2010.

  1. I of of the camp that does not believe the market is driven soley by random walk. I think you can produce data that looks similar to random walk, but that doesn't mean the market is a random walk.

    Here is an interesting debate on the subject:

    Stock Market is a Random Walk:

    Unfortunately, using the Uncertainty Prinicpal seems to be a failure to support Random Walk Theory.

    Would be interesting to think what other have to say on this subject.
  2. Who cares what two anonymous "random" tools debate about. Either trade and make money or spend time in academic arguments.
  3. Mike Okistini,

    Why does it matter you ask? Well that is simple - do you use any technical tools to generate signals, do you use volatilty or SD to make decisions, do you use any math to forecast, measure, etc? If so the soundness of any theory is based on some general prinipals of the market condition.

    I still find it odd that people use SD with normal distribution function, but they do.

    I was just interested in what others (who use models) think of the Random Walk theory.

    Really don't know why you even bothered to post, unless you are just trolling.
  4. The market is neither efficient nor random. The closest model to the market is lognormal distribution. "log" suggests trend, "normal" suggests reversion to the mean.
  5. I tend to agree, however standard deviation is easy (fast) to calculate and often it's good enough. Risk/variance prediction is a very difficult problem so if you can approximate it then why bother figuring out the "real" value.
  6. kut2k2


    Why "unfortunately"? No trader wants support for RWT. RWT says trading is impossible. Fortunately it is the RW model of the market that is impossible.

    It's been proven that stock price movements are not random walks. Debating this subject is like debating whether or not the earth is flat.

    Well, the lognormal distribution is completely random, so that's not the best model for the market.