Is Technical Analysis Based on a Flawed Assumption That Completely Invalidates It?

10/07/2015 9:00 am EST

Focus: FOREX


Eamonn Sheridan, of ForexLive.com, analyzes a challenge from John Burbank, founder of hedge fund Passport Capital, regarding price. Does price really mean nothing other than the equilibrium of liquidity, and if so, what does that say about technical analysis and the often crazy price swings that forex traders tend to see?

"The price is right," it reflects all information.

Here's a challenge, from John Burbank, founder of hedge fund Passport Capital. He says:

"Price is all the information that exists in the market...it's just what people think....price means nothing other than the equilibrium of liquidity...It doesn't mean it's good or bad, it's just where people agree."

  • Burbank is saying price just reflects available information
  • The agreed upon price could actually be wrong
  • Prices could actually be compromised of irrational agreements

That 'price means nothing other than the equilibrium of liquidity' is an intriguing point (at least to me).

Thanks to the Pragmatic Capitalism blog for this food for thought.

By Eamonn Sheridan, Chief Asia-Pacific Currency Analyst, ForexLive.com

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