Random Walk

Assuming that the markets are completely efficient, random walk theory states that stock prices change in a random manner and one cannot predict the price of a stock in advance. The theory argues that each change is independent of previous changes which are in contrast to the technical analysis, which assumes that prices follow patterns and that the future price can be predicted based on historical price data. According to the random walk theory, price behavior cannot be predicted because it does not act on any predictive fundamental or technical indicator.