Challenges to Technical Analysis | CFA Level 1 Exam Prep

Challenges to Technical Analysis

Prev Question Next Question

Question

Which of the following are challenges to technical analysis?

I. Technical analysis involves a great deal of subjective judgement.

II. Technical analysis is heavily reliant on financial statements.

III. The majority of studies have supported the Weak Form Efficient Market Hypothesis. IV. The standard rules that signal investment decisions can change over time.

V. The majority of studies have concluded that securities prices do not move in trends.

VI. Technical analysis assumes that supply-demand fluctuations lead to changes in securities prices.

Answers

A. I, III, IV, V, VI

B. I, II, IV, V,

C. I, III, IV, V

D. I, III, IV

E. I, II, III, IV, V, VI C

Show Answer

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D. E.

Explanation

Of the choices listed, only II and VI are not criticisms of technical analysis. While VI appears correct, it is not. In fact, both fundamental and technical analysis recognize the importance of supply and demand fluctuations. The difference is that technical analysis assumes that supply and demand are influenced by both rational and irrational factors, whereas the EMH assumes that investors are rational. Had choice VI been phrased as "technical analysis assumes that supply- demand fluctuations, which are caused in part by irrational forces, are the only determinants of shifts in securities prices," then it would be correct in this example.

Prev Question Next Question