The Efficient Market
Theory says that security prices accurately reflect any and
all information that exists about that security. Further, the theory
states you cannot consistently outperform the stock market because
information arrives randomly into the market, and prices adjust
instantly to take account of it. The result should therefore be
that the market correctly prices all securities at all times - i.e.
you cannot profit from an under or overpricing because the market
will correct the imbalance too quickly. Obviously, this implies
that any analysis, either fundamental or technical, is worthless.
Fortunately for traders, it is the theory which is wrong in this
case, as any market essentially moves according to the flows within
its 'expectation machine', making price movements in many cases
'self fulfilling prophecies'. From a day trading system perspective,
efficient market theory will therefore be of limited use.