Can "Noise" Be Traded?

[EricP]

Quote from SilverDelta:

If what you mean by noise is a stock that moves randomly, then no way, it can't be done profitably. Where's your edge?

Could you make money betting on the rolls of the dice, if you're only given 6:1 odds for a single dice roll? It can't be done in the long run, and it's the same issue.

Silver

Hmmm, I guess it depends on how you look at the question. I believe that you can profitably trade 'noise', at least as I define noise.

Your example of rolling a single dice is a good example. The 'price' will range from 1 to 6 randomly. I will choose to 'short' at 5, double up my short on a 6, and cover on a 2 or 1. Reverse logic for longs, buying at 1 and 2, and selling at 5 or 6.

Even though the 'price' is randomly distributed, I can make very consistent money by buying the lower prices, and selling at higher prices. Trading noise can be a successful strategy when executed in a logical manner, IMO.

-Eric

 

[Samson77]

Yes noise can be traded.

I will give you 2 Beatles records for one Elivis...

 

[damir00]

Quote from SilverDelta:

If what you mean by noise is a stock that moves randomly, then no way, it can't be done profitably.

noise isn't just random - is random inside an envelope.

Where's your edge?

finding the edge of the envelope and having patience.

 

[vikana]

Personally, i don't think "noise" trading is worth it. Movements take time and if you trade noise you're most likely going to be short term. That will make commissions and slip a high % of your profits.

IMO slip + commiss should be kept under 10% of total gross in order to be succesful longer term.

 

[opmtrader]

Very nicely put prophet

 

[nitro]

No

nitro

 

[mind]

language problem. people talking about different things here. for a swingetrader, everything happening below five minute date level is noise. for a minute data trader everything below five seconds is noise and so forth. everything that is below our level of analysis is defined as noise. is it tradeable? per definition not with those tools that lead me to label that level "noise".

the real question should: i am trading about once a day. are there tools that enable me to trade ten times a day, thus are there tools that let me detect patterns where i currently observe noise?


peace

 

[Cutten]

Quote from damir00:

bet small, have some insurance. what else is there to do?

Having the ability to detect a big move when it is occuring is also useful. You can then get out and reverse to play the emerging trend. Not always easy but with experience it can be done IMO.

 

[Cutten]

Quote from SilverDelta:

If what you mean by noise is a stock that moves randomly, then no way, it can't be done profitably. Where's your edge?

Could you make money betting on the rolls of the dice, if you're only given 6:1 odds for a single dice roll? It can't be done in the long run, and it's the same issue.

Silver

The bid/ask spread is one edge, along with the brief spikes created by losers entering and exiting their positions. Whether these edges are enough to compensate for transactions costs depends on the market.

 

[abogdan]

Noise or imperfections are the only things that are tradable! If the markets were completely 100% efficient there would be no patterns then. The only reason we can trade is because of the noise! Distortions of the market self-regulating process is the only reason for speculations. Turbulence of the normally smooth securities exchange process creates the need for additional liquidity (you) to be involve, to lubricate the process by supplying counter noise efforts. Unfortunately, there is only a handful of traders who understand this in depth. Oh, well ....

Cheers