Can "Noise" Be Traded?

[abogdan]

Quote from ktmexc20:

Can a trader be 100% efficient. Yaaaahoooo

A trader can not, a computer program created by a trader could.

 

[shifftty]

If you've ever been on a floor -- noise equals liquidity...and where's there's liquidity, there's opportunity. I'm not sure if you guys are daytraders (?), but watching the tape for "noise" is a huge signal that if you are planning on making a trade with (slightly) less fear of liquidity risk...then it's time to hit the tape.

 

[abogdan]

Quote from shifftty:

If you've ever been on a floor -- noise equals liquidity...and where's there's liquidity, there's opportunity. I'm not sure if you guys are daytraders (?), but watching the tape for "noise" is a huge signal that if you are planning on making a trade with (slightly) less fear of liquidity risk...then it's time to hit the tape.

Exactly!

 

[OddTrader]

Quote from 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

Too many truths here that the markets and their players would have to follow.

 

[ElCubano]

Quote from Cutten:

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.

things that make you go hmmmmmm......

 

[abogdan]

Quote from OddTrader:

Too many truths here that the markets and their players would have to follow.

Filter one type of the noise that you particularly like and follow! It doesn't matter what tools we are using or what type of the market "noise" we are trading. What matters is the accuracy of the response that we can exhibit by processing the noise.

 

[illiquid]

As for noise vs efficiency as regards to liquidity -- doesn't noise go up in proportion to the number of players and the volume they provide? Those commodity and stock charts pre-information age look awfully smooth and steady in getting from point A to B. Noise is the direct result of a market getting "overly" efficient (too many people seeing the same things or playing the same move) and thus needing some pruning.

 

[OddTrader]

Quote from abogdan:

Filter one type of the noise that you particularly like and follow! It doesn't matter what tools we are using or what type of the market "noise" we are trading. What matters is the accuracy of the response that we can exhibit by processing the noise.

More truths about how to confidently manage the markets and easily profit from their movements, truly great.

 

[abogdan]

Quote from illiquid:

As for noise vs efficiency as regards to liquidity -- doesn't noise go up in proportion to the number of players and the volume they provide? Those commodity and stock charts pre-information age look awfully smooth and steady in getting from point A to B. Noise is the direct result of a market getting "overly" efficient (too many people seeing the same things or playing the same move) and thus needing some pruning.

You are partially correct. The more participants are in the market the higher the frequency of the noise. At the same time, as the amplitude distribution (or harmonics weights) is constantly shifting towards higher frequencies, the longer term moves involve less and less participants. The higher frequency noise is also supported by reduction of the response time exhibited by execution systems. That is why "old" charts looks awfully smooth. Try to "compress" them (or shift the frequency band) and you'll see a chart similar to today's charts.

 

[abogdan]

BTW, one easy way to assess the frequency of the noise is to calculate the average time that it takes for a security to move X points either direction. Try it, its an eye opener.