Chartist patterns can be generated by random-number tables

Evidence

Random-walk theory and efficient-market theory challenged the chartist worldview by suggesting that the patterns that the chartists believed they saw in their graphs were being read by them into what were actually random movements. For example, the University of Chicago Business School statistician Harry V. Roberts used a table of random numbers to simulate a year in a market, and found that the resultant graph (figure 3.1) contained the most famous of all chartist patterns, the “head-and-shoulders”: a “peak” with two lower peaks on either side of it, regarded by many chartists as the unequivocal signal of the start of a prolonged decline. “Probably all the classical patterns of technical analysis [chartism],” Roberts asserted, “can be generated artificially by a suitable roulette wheel or random-number table.” — Donald MacKenzie, An Engine, Not a Camera, 338

Categorization

• CANDY: The head-and-shoulders pattern emerging from a random-number table is a delightful, tweetable illustration of why technical analysis is suspect.