The claim that prices already reflect available information. Stated in three strengths: weak (past prices), semi-strong (all public information), and strong (all information including private).
Weak form says technical rules based on past prices cannot produce risk-adjusted profits. Semi-strong adds public fundamentals and news. Strong form adds inside information, and is clearly false, which is why insider dealing is illegal and profitable.
The evidence is mixed rather than decisive. Documented anomalies such as momentum and short-term reversal have survived decades, yet most of them shrink after publication, which is alpha-decay and is itself evidence that markets adapt.
The practical stance for a trader: treat the market as efficient by default, so that any claimed edge must explain who is on the other side and why they keep paying. If you cannot name the counterparty and their motivation, you probably have a backtest artefact.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Expectancy: the average trade. Forty trades sorted by outcome: 24 small losses and 16 larger wins. Weighting each side by how often it happens gives the average result per trade, marked here by the dashed line at +$120.
Educational only, not advice. Spotted an error? Post in Site Feedback.