Question

Which of the following is not considered an assumption of technical analysis?

A. Market value is determined solely by supply and demand.
B. Supply and demand are governed by both rational and irrational factors.
C. Security prices tend to move in trends that persist for an appreciable length of time.
D. Stock prices follow a random walk.
E. Changes in trend are caused by the shifts in supply and demand relationships.

Answer 1

The answer is: D) Stock prices follow a random walk.

Step-by-step explanation:

Technical analysts use information on past stock prices and trading volumes to try to determine the future price of stocks, so they make trading decisions based on these predictions. They believe that the market value of stocks is determined by the interaction of supply and demand. Usually technical analysis is much more efficient when it is used for short term trading decisions. They work with probabilities and it is always easier to calculate short term probabilities that can work and not so much long term probabilities.