The Random Walk Theory is a financial theory that suggests that the movements of financial markets, such as the stock market, are completely random and unpredictable. This theory is based on the idea that it is impossible to predict the future direction of the market based on past price movements, as the market is influenced by too many variables and unknown factors.The random walk theory is often used as a counterargument to technical analysis, which is the practice of using past price and volume data to predict future market movements. Proponents of the random walk theory argue that technical analysis is futile because the market is too complex and dynamic to be accurately predicted using past data.One example of the random walk theory in action is the idea that the stock market is like a "coin toss." Just as it is impossible to predict the outcome of a coin toss with 100% accuracy, it is similarly impossible to predict the future direction of the stock market with absolute certainty.While the random walk theory has its proponents, it is important to note that it is not universally accepted and there are other theories, such as the efficient market hypothesis, that suggest that financial markets may not be completely random and that it is possible to make informed investment decisions based on available information.
