**Random walk theory, **

### Definition of Random walk theory:

Random walk theory believes it's impossible to outperform the market without assuming additional risk. It considers technical analysis undependable because chartists only buy or sell a security after an established trend has developed. Likewise, the theory finds fundamental analysis undependable due to the often-poor quality of information collected and its ability to be misinterpreted. Critics of the theory contend that stocks do maintain price trends over time – in other words, that it is possible to outperform the market by carefully selecting entry and exit points for equity investments.

Stockmarket analysis theory that stock prices (and the capital markets in general) follow a pattern-less (random) path such as that of a drunkards walk. Therefore, their future course is unpredictable and the best forecast of a stocks price is equal to its present value plus an unpredictable negative or positive random error. Proposed in 1900 by the French mathematician Louis Bacheiler it is explained as a Markov process, and is an antithesis of technical analysis. See also Brownian motion.

Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other. Therefore, it assumes the past movement or trend of a stock price or market cannot be used to predict its future movement. In short, random walk theory proclaims that stocks take a random and unpredictable path that makes all methods of predicting stock prices futile in the long run.

### How to use Random walk theory in a sentence?

- Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other.
- Random walk theory considers fundamental analysis undependable due to the often-poor quality of information collected and its ability to be misinterpreted.
- Random walk theory considers technical analysis undependable because it results in chartists only buying or selling a security after a move has occurred.
- Random walk theory infers that the past movement or trend of a stock price or market cannot be used to predict its future movement.
- Random walk theory believes it's impossible to outperform the market without assuming additional risk.
- Random walk theory claims that investment advisors add little or no value to an investor’s portfolio.

Meaning of Random walk theory & Random walk theory Definition