Can "Noise" Be Traded?
- Thread starter ktmexc20
- Start date
I think I know why this thread started, so I'll add my 2 cents. I had postulated that examining price movement in minutiae was counter-productive when attempting to follow a trend. KTMex, our thread starter, had countered that in trading a trend, he wants to be as close, or on top of, the market as he can, which for him meant following price at very small time intervals, intervals which I maintained were noise when trying to trade said trend. For example, why scale down to, say, minute ticks on a chart when you are playing (or trying to play) a strongly trending instrument for the day? One would be better served by stepping back and keeping a bigger picture perspective, as price swings at that short a time frame constitute "noise".
That being said, these price gyrations are noise only within the context of attempting to follow a trend. That is not to say the noise isn't tradeable; I'm sure there are scalpers out there who have an edge and can trade tiny time frames. My point is simply that trading the trend is better served by keeping a bit more of a macro view.
Comments?
TM
That being said, these price gyrations are noise only within the context of attempting to follow a trend. That is not to say the noise isn't tradeable; I'm sure there are scalpers out there who have an edge and can trade tiny time frames. My point is simply that trading the trend is better served by keeping a bit more of a macro view.
Comments?
TM
Quote from Bsulli:
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!
Please tell us how you are going to Trade them.
Just a couple of very very very primitive thoughts:
Would it be possible that charting is also relative, depending on the scales, when inspecting the price fluctuations?
To observe noises, I would guess probably the selected timeframes for decision-making and the (minimum) time-period for order-holding would be more important.
A comparatively longer-term (say weekly) timeframe trader may relatively care much less (if any) about noises than a short-term (say 5-minute) timeframe trader.
Quote from abogdan:
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.
I understand your definition and it is certainly a reasonable one. Although I am hardly expert in these matters, I would think that you could have 2 (or many more) fairly different looking charts with a similar mean and variance based on the distribution of the data points, but with some of those charts being more tradeable than others. Therefore, I still think that a price chart would put us all closer on the same page. Further, how many of the previous respondents do you think incorporated this definition in their discussion of noise?
Quote from OddTrader:
Just a couple of very very very primitive thoughts:
Would it be possible that charting is also relative, depending on the scales, when inspecting the price fluctuations?
To observe noises, I would guess probably the selected timeframes for decision-making and the (minimum) time-period for order-holding would be more important.
A comparatively longer-term (say weekly) timeframe trader may relatively care much less about noises than a short-term (say 5-minute) timeframe trader.
The noise exists on any level. If you trade weekly charts you just simply deal with different kind of frequency and amplitude of the noise compared to, let say, 5 min chart. However, the principles of dealing with this noise will remain relatively the same. There are two major principles of treating the noise on any level:
1. Filter it (using, moving averages, FIR filters, etc.)
2. Use it to trade (employing any counter trend technique like bands, oscillators, RSI etc. that work well on detrended signal)
Those are basics, obviously. But recognizing the noise is a very fruitful exercise for anybody whether you use it or filter it. The question becomes then what signal gives you more $$$ per trade. Simple observation could be also made on that respect:
The sum of all the squiggles is always greater then a straight line connecting the ends
I agree, however, I was thinking more within the context of a given chart. For example, someone could post a weekly chart to depict noise while someone else could show a 1-minute chart. Each one could be discussed on its own merits in the context of the time frame depicted by that chart. I realize that you could still have a fair amount of variation in opinions due to traders who may have a longer of shorter holding period even within a specific time frame, but at least it is a relatively unambiguous starting point.