Does the Existence of Predictable Price Patterns Contradict the Weak Form of EMH?
Yes, the existence of consistently profitable, predictable price patterns contradicts the Weak form of EMH. Weak form efficiency states that past prices and volume data cannot be used to predict future prices in a way that yields abnormal returns.
If a pattern, such as a specific chart formation, reliably leads to profit after accounting for transaction costs, it suggests the market is not fully Weak-form efficient. Arbitrageurs would quickly eliminate such patterns.
Glossar
Price Patterns
Analysis ⎊ Chart patterns provide visual heuristics for anticipating short-term directional movements based on historical price action within options and futures.
Predictable Price Patterns
Pattern ⎊ Within cryptocurrency derivatives and options trading, predictable price patterns represent recurring formations observable across historical data, indicative of potential future price movements.
Weak Form Efficiency
MarketEfficiencyLevel ⎊ Weak Form Efficiency posits that current asset prices fully reflect all past market data, implying that technical analysis alone cannot generate consistent excess returns because historical price patterns are already priced in.