The efficient market hypothesis (EMH) originated in the 1960s and
thanks to the work of economist Eugene Fama. This hypothesis holds that it is impossible to beat the market, as prices in the market already incorporate and reflect all relevant information which may impact a stock.
Marketing Efficiency suggests that prices reflect certain information relating to
asset pricing and that it is therefore not possible to earn abnormally high average returns using said information. As new info randomly arrives, prices will change randomly.
Weak form efficient:
A market is weak form efficiency if prices reflect all past price and trading volume information i.e price and amounts of the assets sold. This therefore rules out Technical analysis because with that information you cannot expect to earn abnormal profits.
Semi-strong form efficient:
A market which reflects all past price, trading volume and all public information (info related to economy like inflation rate, unemployment rate, industries, firms whose shares you're dealing also the financial statements, etc too). So if the market is Semi-strong efficient then you cannot use this information to earn abnormal profits. Thus it rules out Fundamental analysis (using public info to predict mis-prices of the assets)
Strong form efficient:
A market which reflects all past prices, trading volume, all public information and all private information which is information that is not released out yet and is known only by the selective people in the company eg CEO (insider private information which isn't released to public). Thus in a Strong Form efficient market, this information is also available with the public and therefore cannot be used to earn abnormal profits. At this level no body can make abnormal profits using all this information (because it is all being included).
Technical Analysis
Technical analysis is an analysis methodology for forecasting the direction
of prices through the study of past market data, primarily price and volume. It is a trading discipline employed to evaluate securities and identify trading opportunities by analyzing statistics gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security's intrinsic value, technical analysts focus on charts of price movement and various analytical tools to evaluate a security's strength or weakness. Technical Analysis assume that all information studied by Fundamental Analysis is already estimated in the price of the given stock, ETF, commodity, currency, or any other commodity.
Momentum and Moving Averages
Momentum is the tendency for rising asset prices to rise further, and falling prices to keep falling. Momentum signals (e.g., 52-week high) have been shown to be used by financial analysts in their buy and sell recommendations. Finding the direction of current market momentum is an important step to understand the trend and there by trade. This is where moving averages come to play. The moving average (MA) is a simple technical analysis tool that smooths out price data by creating a constantly updated average price. The average is taken over a specific period of time, like 10 days, 20 minutes, 30 weeks or any time period the trader chooses. In statistics, a moving average (rolling average or running average) is a calculation to analyze data points by creating series of averages of different subsets of the full data set. Thus it is often used in technical analysis of financial data, like stock prices, returns or trading volumes.
Sentiment Indicators
Sentiment indicator refers to a graphical or numerical indicator designed to
show how a group feels about the market or economy. Basically a measure of investor sentiment in the market, measured by looking at the number of opening long call options (buy at a price in future) to opening long put options (sell at a price in future) purchased. A sentiment indicator seeks to quantify how various factors, such as unemployment, inflation, macroeconomic conditions or politics influence future behavior. Market sentiment is the feeling or tone of a market, or its crowd psychology, as revealed through the activity and price movement of the securities traded in that market. For example, rising prices would indicate a bullish market sentiment, while falling prices would indicate a bearish market sentiment. Sentiment indicators can be used by investors to see how optimistic or pessimistic people are to current market conditions.