Yes
Can "Noise" Be Traded?
- Thread starter ktmexc20
- Start date
Yes, please forgive me for mauling any concept or term that carries other connotations beyond the "familiar" or colloquial in terms of trading.
I guess I was extrapolating from an ideal "efficient" market model which should be noise-free, using the term "noise" to denote the effects on price movement from added inefficiency. What happens when markets begin to price in anticipated imperfection itself?
Take the example of an event which causes a momentus slide in price, that is just as quickly erased as buyers push back prices for apparently no reason at all. If noise is correlated to imperfect information, someone shorting the drop could be said to have mis-priced (or mistimed the pricing of) the event, considering that in retrospect most of the "street" was already leaning short, which led to a big "squeeze". Furthermore, other players could have correctly anticipated that the market was currently "oversold", and entered long to exacerbate the pain for the shorts. What part of that V-move would then be considered "noise"?
In the ideal model, event X hits the market and price instantly gaps down; however, in reality, sometimes this move gets completely erased. Either the event really had no impact in retrospect and all sellers sold on imperfect impulse, or the event is actually priced in but for some reason can't hold that level -- noise overwhelming event X, and transformed into event "Y"? I guess the argument against this is to consider that virtually all movement is rationally tied to some event, and that the "irrational" rebound is a move which represents an even stronger discounting of a more pertinent future event or overarching concurrent event? Stop me if I'm babbling and making no sense.
Well, you are overcomplicathing things imo because the concepts at least are simple. It is weather they apply as defined to the markets that is not so simple.
It is probably more accurate to call the movement in the stock market "zero-intelligence" as opposed to "random" as defined in 2) in my post, but even that term leaves one unstatisfied.
nitro
It is probably more accurate to call the movement in the stock market "zero-intelligence" as opposed to "random" as defined in 2) in my post, but even that term leaves one unstatisfied.
nitro
Quote from illiquid:
Yes, please forgive me for mauling any concept or term that carries other connotations beyond the "familiar" or colloquial in terms of trading.
I guess I was extrapolating from an ideal "efficient" market model which should be noise-free, using the term "noise" to denote the effects on price movement from added inefficiency. What happens when markets begin to price in anticipated imperfection itself?
Take the example of an event which causes a momentus slide in price, that is just as quickly erased as buyers push back prices for apparently no reason at all. If noise is correlated to imperfect information, someone shorting the drop could be said to have mis-priced (or mistimed the pricing of) the event, considering that in retrospect most of the "street" was already leaning short, which led to a big "squeeze". Furthermore, other players could have correctly anticipated that the market was currently "oversold", and entered long to exacerbate the pain for the shorts. What part of that V-move would then be considered "noise"?
In the ideal model, event X hits the market and price instantly gaps down; however, in reality, sometimes this move gets completely erased. Either the event really had no impact in retrospect and all sellers sold on imperfect impulse, or the event is actually priced in but for some reason can't hold that level -- noise overwhelming event X, and transformed into event "Y"? I guess the argument against this is to consider that virtually all movement is rationally tied to some event, and that the "irrational" rebound is a move which represents an even stronger discounting of a more pertinent future event or overarching concurrent event? Stop me if I'm babbling and making no sense.
What some perceive to be "noise", may be taken as helpful information to others.
For instance, think of how a new trader looks at the screen of all the quotes and sees all the flashing "noise". Slowly but surely he starts to see "things" within the "noise". Now take this idea to the next level. Same idea.
For instance, think of how a new trader looks at the screen of all the quotes and sees all the flashing "noise". Slowly but surely he starts to see "things" within the "noise". Now take this idea to the next level. Same idea.
No.Quote from kut2k2:
Maybe the appropriate term is "zero-information". In his original yahoogroup, Mark Jurik had a post on analyzing information content in price movements. I wish now that I'd saved it.
Unless you prematurely put a handkerchief over your eyes while trading, there is always information.
I meant zero intelligence:
http://dsc.discovery.com/news/briefs/20050207/stocks.html
nitro
Trying to have it both ways?
nitro: "1) Mathematical Noise by definition means it is indeterminate. Therefore, no edge can exist, even for God. ... What you are saying is that there is no pure versions of 1) in the markets. I doubt it, but it may be true."
Mathematical noise has ZERO informational content. Not even God can use it. Your. Words.
'Sides, the way the author is using "intelligence" he clearly is using it as a synonym for "information". Just like the spy community uses it: intelligence = information, not cleverness.
No,
What I am saying is that a reasonable replacement for 1) above, or honest to goodness randomness which may or may not exist in the markets, is zero intelligence.
Believe me, these questions go at the heart of the most advanced analysis that scientists do on the markets as a whole. There are only theories as of now because amrket explanation is an experimental science mostly.
The few places where there has been theoretical work is in coming up with new trading instruments through financial engineering, and in options pricing through the BS function.
nitro
What I am saying is that a reasonable replacement for 1) above, or honest to goodness randomness which may or may not exist in the markets, is zero intelligence.
Believe me, these questions go at the heart of the most advanced analysis that scientists do on the markets as a whole. There are only theories as of now because amrket explanation is an experimental science mostly.
The few places where there has been theoretical work is in coming up with new trading instruments through financial engineering, and in options pricing through the BS function.
nitro