Technical analysis assumption

CFA Level I Portfolio Management
#1

Question: Which of the following is NOT an assumption of technical analysis:
a. Security markets are efficient
b. the security under analysis is freely traded
c. Market trends and patterns tend to repeat themselves.

The answer is A. I don’t get it. Everyone said that the first assumption about technical analysis is “market discounts everything” which is similar to the efficient market hypothesis. The curriculum explained the answer like this: Technical analysis works because markets are not efficient and rational and because human beings tends to behave similarly in similar circumstances. While I agree that the market is not efficient due to the impact of behavioral finance, the underlying assumption for technical analysis is the market efficiency. Where am I wrong?

#2

Does the curriculum say this? If so, where, exactly?

#3

No, that is my point of view and it came from the statement that “market discounts everything” is the assumption of the technical analysis. That is why I don’t know where I am wrong at.

#4

I’m not sure where you got this, nor why it would naturally lead to the conclusion that markets are efficient.

I don’t see this in the curriculum. Where did you get it?

#6

Thanks for that. I must have missed it.

Nevertheless, the fact that technical analysis assumes that the market discounts everything does not mean that technical analysis assumes that markets are efficient. Trust me on this: if efficient markets were an assumption of technical analysis, the curriculum would say so, explicitly.

1 Like
#7

I mistakenly delete the previous post while trying to write a few more sentences and do not know how to restore it. Thank you for your reply as always.

#8

I saw it, then I saw it disappear.

You’re most welcome.