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I thought technical analysis (as opposed to fundamental analysis) assumes markets aren't efficient and subject to things like herd behavior and other psychologi
by akra 6y ago
I thought technical analysis (as opposed to fundamental analysis) assumes markets aren't efficient and subject to things like herd behavior and other psychological effects of human decision making. Otherwise things like momentum trading wouldn't work (i.e. price would just gap to the true value if markets were indeed efficient). If tech analysis works at times for me it would show that markets aren't that efficient as a whole.
IMO markets can't be efficient because we as humans aren't - our perception of value itself can be subjective and influenced by many things including FOMO, safety in numbers perceptions, risk aversion (usually), etc etc.
- bo1024 6y ago> our perception of value itself can be subjective and influenced by many things including FOMO, safety in numbers perceptions, risk aversion (usually), etc etc. The intuition behind the efficient market hypothesis is that each of these deviations from "homo economicus", if it occurs in a market, is an opportunity for someone else to make money. EMH says that opportunity won't be wasted, at least for very long.
- kohlerm 6y agoThat still means efficiency is lost. E.g. the market might fluctuate between non-optimal state. And then again in case monopolies build up, then there is no easy way to get out of a suboptimal state, because there are no real opportunities for someone else.