Market pricing appears random, but it is not because of a random number generator deciding when to go up and when to go down. It appears random because prices a

Market pricing appears random, but it is not because of a random number generator deciding when to go up and when to go down. It appears random because prices actively resist the formation of patterns, and a chart with no pattern by definition appears random. If a trader recognizes a pattern in a stock that is 100% guaranteed to play out they can borrow heavily and put it all into trading the pattern and walk away with a huge profit. If there's even a small probability that a pattern will play out, then a trader can place a proportionally small bet on it and still have a significant edge over everyone else. But the act of trading a pattern works to counteract the existence of the pattern: if the pattern predicts that the price will go up, then people will buy, thus driving the price up and making it harder for others to jump in until the profitability of the trade evaporates. Now imagine 10,000 people (and robots) all doing this simultaneously. This is how markets work at the micro level. It may sound like a self-fulfilling prophecy but it happens so fast that the pattern never really exists to begin with -- it's just a way to explain why there are no patterns. At least theoretically. Most traders (by head count, not dollars) haven't the tiniest idea what they're doing. Luckily, these "noise traders" all tend to counteract each other, and when they do manage to push prices off-course then someone who does know what's going on steps in and pushes things back in the right direction, making a profit in the process. Sometimes there are catastrophic failures, but while they might scare investors they don't affect the ability of the market to predict pricing long-term. The broad markets recovered extremely quickly during the flash crash and without any regulatory intervention. As for whether the random walk means the pricing is "noise": the market price is an estimation of the fundamental value of the company, which is an imaginary number that is impossible to calculate but is occasionally pinned down when someone gets bought out. Because it is an estimation, and because the fundamental value is also ever-changing due to uncountable external factors (interest rates, consumer confidence, phase of the moon), the result looks like a random walk. It's a noisy estimation of an imaginary number. Neat, huh? </wall-of-text>