process
Charts don't predict
The rule
Past prices tell you little about future ones. A chart is a record of what happened, not a map of what comes next.
Where it flips
The random-walk view can be overstated. Markets are not perfectly fair, and some volume and structure signals carry real information. Treating literally every chart as pure noise throws those away too.
Malkiel's evidence is that prices move close to a random walk. What a stock did yesterday says very little about tomorrow. After costs, chart-based systems rarely beat simply buying and holding a broad index. Charts, patterns, and indicators are records of past trades, not fortune-telling. Reading them as prediction is where crowds get fooled. This does not make a chart useless. It makes it honest only as history. Enjoy a chart as a picture of the past, but do not treat any pattern as a reliable forecast.
A worked example
A backtested chart system is used live and, after brokerage and taxes, quietly does worse than a plain index fund held the whole time. The pattern predicted the past, not the future. [illustrative]
How to spot it
- ·you read charts as history, not as prophecy
- ·you compare a chart system to plain buy-and-hold
- ·you trust no pattern as a reliable forecast
Burton Malkiel · A Random Walk Down Wall Street