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Random Walk Theory 
Random Walk theory has been developed by statisticians in the academic world. The theory holds that 
stock prices move at random and not in accord with predictable patterns of behavior. On this basis, 
stock market analysis is pointless as nothing can be gained from studying trends, patterns, or the 
inherent strength or weakness of individual securities. 
Amateurs, no matter how successful they are in other fields, usually find it difficult to understand the 
strange, "unreasonable," sometimes drastic, seemingly random ways of the market. Academics are 
intelligent people, and to explain their own inability to predict market behavior, some of them simply 
assert that prediction is impossible. Many facts contradict this conclusion, and not all of them are at 
the abstract level. For instance, the mere existence of very successful professionals who make 
hundreds, or even thousands, of buy and sell decisions a year flatly disproves the Random Walk idea, 
as does the existence of portfolio managers and analysts who manage to pilot brilliant careers over a 
professional lifetime. Statistically speaking, these performances prove that the forces animating the 
market's progression are not random or due solely to chance. The market has a nature, and some 
people perceive enough about that nature to attain success. A very short term speculator who makes 
tens of decisions a week and makes money each week has accomplished something akin to tossing a 
coin fifty times in a row with the coin falling "heads" each time. David Bergamini, in Mathematics, 
stated, 
Tossing a coin is an exercise in probability theory which everyone has tried. Calling either heads or 
tails is a fair bet because the chance of either result is one half. No one expects a coin to fall heads 
once in every two tosses, but in a large number of tosses, the results tend to even out. For a coin to 
fall heads fifty consecutive times would take a million men tossing coins ten times a minute for forty 
hours a week, and then it would only happen once every nine centuries. 
An indication of how far the Random Walk theory is removed from reality is the chart of the Supercycle 
in Figure 5-3 from Lesson 27, reproduced below. Action on the NYSE does not create a formless 
jumble wandering without rhyme or reason. Hour after hour, day after day and year after year, the 
DJIA's price changes create a succession of waves dividing and subdividing into patterns that 
perfectly fit Elliott's basic tenets as he laid them out forty years ago. Thus, as the reader of this book 
may witness, the Elliott Wave Principle challenges the Random Walk theory at every turn. 

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Figure 5-3 
Next Lesson: Technical and Economic Analysis