concept
Random Walk Theory, also known as Random Walk, means that the change of stock prices is random and unpredictable. This is an anti-technical chart theory.
In 1900, French mathematician Louis Bachelier first proposed the hypothesis that financial asset prices follow a log-normal distribution, and assumed that stock prices follow Brownian motion (an endless disordered motion of molecular particles in physics), which became the common source of the random walk theory and the Efficient Markets Hypothesis.
personal opinion:
Many investors have rejected this theory and put it into practice to prove that it is a fallacy.
Personally, I think this theory has certain merits, but it does not necessarily oppose icons and technical indicators. On the contrary, icons and technical indicators to some extent also reflect the status of market operation from a statistical perspective through indicators, thereby increasing the probability of investment success.
The investment market is a dynamic game process. When ordinary investors do not have complete information (God's perspective), investment has both a certain degree of certainty and a part of the random process. We see that cryptocurrency is greatly affected by macroeconomics, sentiment, and news. These external impacts are sometimes random. For example, U.S. CPI and interest rate hikes. We have done a correlation analysis on U.S. interest rate hikes and Bitcoin prices in the past five years, and the results are significantly correlated.
Wall Street tycoon John Bogle believes in the random walk theory, but Buffett and Soros sneer at this theory. The random walk theory tells us not to blindly rack our brains to predict short-term price trends, open contracts, etc. The consequence of this will only put ourselves in a gambling game.
Learning to judge the overall trend of the cryptocurrency industry from the economic cycle and macro trends may increase the probability of successful investment. From this perspective, investment is an expected probability. Historical prices and experience may not accurately predict the future, but they can reflect the operation of the market from a high probability perspective.
It is better to have no books than to believe in them blindly. When studying this theory, everyone must have their own understanding. Many classic theories are contradictory in principle. The most important thing is to learn theories that suit you and form your own investment logic.
[The following content comes from the Internet]
All chart analysis schools are based on one assumption, that is, stocks, foreign exchange, gold, bonds, etc. All investments will be affected by economic, political, and social factors, and these factors will repeat themselves like history. For example, if the economy recovers from the Great Depression, property prices, stock markets, gold, etc. will all rise all the way. After rising, there will be a drop, but after falling, they will rise again. Even in the short term, the laws that govern all investment values are inseparable from the above-mentioned factors. As long as investors can predict which factors dominate the price, they can predict future trends. In terms of stocks, chart trends, trading volume, price, etc. reflect the mentality of investors. This mentality is the reason for denying their income, age, understanding of news, acceptance and digestion, and confidence, all of which are reflected in stock prices and transactions. The random walk theory opposes the view that future stock price trends can be predicted based on charts, and the opposite is true.
The random walk theory points out that there are thousands of smart people in the stock market, not all of them are stupid. Everyone knows how to analyze, and all the information flowing into the market is public and available to everyone. There is no secret. Since you know it and I know it, the current stock price has already reflected the supply and demand relationship, or the value itself will not be too far away. The so-called intrinsic value measurement method is to look at basic factors such as asset value per share, price-earnings ratio, dividend yield, etc. These factors are not a big secret, and everyone can find these information by opening a newspaper or magazine. If a stock is worth ten dollars, it will never become worth one hundred dollars or one dollar in the market. No one in the market will buy this stock for one hundred dollars or sell it for one dollar. The current stock market price already represents the views of tens of millions of smart people, forming a reasonable price. The market price will fluctuate around the intrinsic value.
verify
After the random walk theory became well known to investors, many economists have verified the random walk theory. The following are some of the more famous cases.
(1) There was a study that used the Standard & Poor's index of the United States for a long-term study and found that only a small number of stocks rose or fell sharply, rising four or five times, or falling 99%. Most stocks rose or fell by 10% to 30%. There is a normal distribution phenomenon in statistics. That is, the larger the rise or fall, the smaller the proportion. Therefore, stock prices do not have a single trend. Buying stocks depends on whether you are lucky. You have an equal chance of buying rising stocks or falling stocks.
(2) In another experiment, a U.S. senator threw a dart at a financial newspaper and picked out 20 stocks as his investment portfolio. The result was that this random investment portfolio performed similarly to the overall stock market and was not inferior to the investment portfolio recommended by experts. It even performed better than the recommendations of some experts.
(3) Some people have studied the performance of unit funds and found that funds with good performance this year may perform the worst next year. Some funds that were disappointing in previous years may stand out and become the top gainers this year. So there is no clue. Buying funds also depends on your luck. Investment skills are not practical because the stock market has no memory. Everyone is just betting on probability.
In addition to the above-mentioned well-known cases, several crashes in the cryptocurrency market seem to have verified the random walk theory.
core content
1. All information on the stock market is public, such as price, trading volume, earnings per share, etc. Therefore, based on rational technical chart analysis, most stockholders will not spend 20 yuan to buy a stock that is only worth 1 yuan or even loses money. Of course, they will not buy a high-value blue chip stock at a low price. It is precisely because of these public information that rational analysis is actually invalid analysis, and the results are often counterproductive.
2. What affects changes in the stock market are sudden, random, and seemingly irrelevant information, and they affect the stock market in a random and inadvertent way.
3. Therefore, the future trend of the stock market is unpredictable, and chart technical analysis cannot predict these non-public random walk information.
4. The stock price follows the normal distribution law, that is, most stocks have a narrow range of rise and fall, about 10% to 30%, which is in the middle and high end. There are very few stocks that soar more than 100% and plummet less than 100%, and they are at the low end. Therefore, whether you win or lose when buying and selling stocks depends largely on your luck.
[The above content comes from the Internet]
