Technical analysis is the prediction of future price moves from price and volume data. I have often seen it stated as one of the principles of technical analysis that “prices discount everthing”.

I woke up thinking about this this morning. I have never understood why this is considered a principle of technical analysis. “Prices discount everything” sounds like a form of the efficient market hypothesis (EMH). If the EMH were true then technical analysis would be useless, because all relevant information available today would be in the price already. Future price moves would then be affected only by future developments, and not by developments that show up in past price data. The basis of technical analysis is that it takes time for prices to adjust as new situations unfold — in other words, current prices do not discount all available information.

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