Can "Noise" Be Traded?

illiquid · Jul 21, 2004

Quote from abogdan:

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.

Interesting stuff -- so the advent of technology has basically allowed (or perhaps "deceived" is a better word

) participants to trade increasingly shorter-term time frames and thus the long-term trend becomes harder to see under all the short-term liquidity exchanges?

abogdan · Jul 21, 2004

Quote from illiquid:

Interesting stuff -- so the advent of technology has basically allowed (or perhaps "deceived" is a better word ) participants to trade increasingly shorter-term time frames and thus the long-term trend becomes harder to see under all the short-term liquidity exchanges?

That is precisely correct. We have analyzed data for more than 10 years and conclusively proved that this is indeed the case.
Once again, you are absolutely correct.

TheStudent · Jul 21, 2004

Quote from 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.

I presume this is for moves that take place over several days?

Time frames under a day are distorted by the uneven density of trades during the day, no?

abogdan · Jul 21, 2004

Quote from TheStudent:

I presume this is for moves that take place over several days?

Time frames under a day are distorted by the uneven density of trades during the day, no?

Any time frame form 1 min to 30 days will show one consistent pattern. The spectrum of the noise is quite wide. However, the main harmonic is in the minute range for most of the stocks and e-minis.

abogdan · Jul 21, 2004

Running the Fourier analisys on Peak-to-Peak price deviation signal is a good way to see the harmonics.

QQQShort · Jul 21, 2004

Quote from 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.

Click ... and a light bulb snaps on.

Thx, abogdan.

Thunderdog · Jul 21, 2004

Quote from ktmexc20:

I pose this as a question.

Actually my question is... in your opinion to what degree?

"Noise" can be a very relative term. I would think that, before you can have a serious discussion about this topic, you would have to very clearly define what you mean by "noise." Depending on the method, one man's noise may be another man's music. Perhaps if you were to show a graphical depiction of your definition of noise, you would then have more assurance that everyone was talking about the same thing. In my opinion, a price chart might be a better starting point than a vague definition (or even a reasonably clear, but possibly misunderstood, definition).

Just a thought.

abogdan · Jul 21, 2004

Quote from Thunderdog:

"Noise" can be a very relative term. I would think that, before you can have a serious discussion about this topic, you would have to very clearly define what you mean by "noise." Depending on the method, one man's noise may be another man's music. Perhaps if you were to show a graphical depiction of your definition of noise, you would then have more assurance that everyone was talking about the same thing. In my opinion, a price chart might be a better starting point than a vague definition (or even a reasonably clear, but possibly misunderstood, definition).

Just a thought.

Here is a very simple definition of noise:

Take any mean on a price chart (Moving Average, Linear Regression or what ever tools you use to identify the mean). Calculate the deviation of the actual price from your mean. This signal will represent noise in your time definition. From this signal you can identify the frequency, amplitude or what ever you need to filter fhe noise properly and react on it.

Bsulli · Jul 21, 2004

Quote from Thunderdog:

"Noise" can be a very relative term. I would think that, before you can have a serious discussion about this topic, you would have to very clearly define what you mean by "noise."

The definiton of noise around our house comes from my daughter who applies a strict filter when noise enters the room. The rest of the family commonly refers to her idea of noise as her younger brother.

The fun starts when the noise attempts to plow right through the filters!

silverware · Jul 21, 2004

Here is a type of "noise" that I am interested in. The variation in price of ZN after the pit has closed (3:00 pm EST) to the close of trading (5:00pm EST). Thoughts as to a "noise" strategy?