Psychology

Market ‘Noise’: How Seasoned Traders Learn to Ignore It

For many years I was a futures market reporter with the FWN wire service (now called OsterDowJones). I spent time working right on the futures trading floors in Chicago and New York. Most of the time my daily reporting "beat" involved interviewing traders and analysts and then writing three daily market reports. For months at a time I would cover the same markets, day in and day out. It was a fantastic learning experience and an opportunity that very few get.

One thing I eventually discovered from covering the same markets day after day, month after month, was that the vast majority of the time the vast majority of the markets’ overall fundamental and technical situations did not change on a day-to-day basis. Yet, as a market reporter I was conditioned to write about why the market went up one day and why the market went down the next day, and so on. Even though a market may have been in a very narrow trading range for days or weeks, I had to ask the traders and analysts every day to come up with some fresh fundamental andor technical reasons why that market moved only a fraction. Reporting on the New York "soft" futures markets (coffee, cocoa, sugar, cotton and orange juice) is especially difficult for a reporter. He or she needs to dig up and write about some fresh-sounding news every day. The soft markets many times just do not have much fresh fundamental news on a daily basis — or sometimes even on a weekly basis, for that matter. Conversely, it was easier covering the financial and currency markets because there was usually at least one government economic report that came out every day that would make those markets wiggle a bit. Or, some government official (like Greenspan) would make comments to which those markets took notice.

As time went on and I came to better understand markets and market behavior, and as I studied specific trading strategies, I realized that the day-to-day market "noise" is not of much use to most traders. Here’s a specific example of market noise: Recently the live cattle futures market was up a bit on a Monday due to talk that the cash cattle trade later in the week would be at higher money. On Tuesday the futures market dropped a bit because of ideas the cash cattle market trade later in the week may not be at firmer money, but steady at best. Nobody was trying to manipulate the live cattle market that week. It was just a case of differing opinions getting center stage when the market closed on different sides of unchanged.

For a trader who tries to follow the near-term fundamentals in a market too closely, hearing that kind of conflicting news can be a nuisance at least, or a factor that prevents successful trading results at most. It’s not easy for less-experienced traders to ignore the differing daily drumbeat of fundamental news that is reportedly impacting a market.

The lesson here is that prudent traders should not become overly sensitive or reactive to most of the day-to-day fundamental news events that are reported to be moving the market on any given day. What is important for the trader is that he or she recognizes and understands the overall trend of the market, and that daily market "noise" is usually an insignificant part of the overall process of trading and of market behavior, itself.

Jim Wyckoff is the editor of the "Jim Wyckoff on the Markets" analytical, educational and trading advisory service. He is also a technical analyst for Dow Jones Newswires, and was formerly the head equities analyst at CapitalistEdge.com.Jim has spent over 20 years involved with the stock, financial and commodity futures markets. He was a financial journalist with the FWN newswire service for many years, including stints as a reporter on the rough-and-tumble commodity futures trading floors in Chicago and New York. As a journalist, Jim covered every futures market traded in the U.S., at one time or another. It didn't him long to realize the successful traders in every market-be it pork bellies, Treasury bonds or stock index futures-had a common thread among them: nearly all relied on technical analysis to give them a trading edge.Not long after Jim started his career in financial journalism, he began studying technical analysis and found it fascinating. By studying chart patterns and other technical indicators, he realized the playing field could be leveled between the "professional insiders" in the markets. His work has been focused on achieving that end ever since.Jim considers himself a "straight-shooter" in the challenging endeavor of futures trading. Like achieving success in any profession, being a successful trader requires hard work, experience and continuing education. There are no short-cuts to easy money. And, Jim promises and provides excellent customer service, including picking up the telephone, himself, when his valued customers ring him.  Feel free to give him a call at +1-319-277-8643

Jim Wyckoff is the editor of the "Jim Wyckoff on the Markets" analytical, educational and trading advisory service. He is also a technical a...

Mr. Charts

Legendary member
7,364 1,181
There are three types of noise.
a) Insignificant price scatter within a range.
b) The rise and fall of noise from a pit.
c) The ebb and flow of trading between different price levels.

b) and c) are significant
Richard
 

User

Experienced member
1,170 23
I think it has to be said that if your a long term trader who looks at market fundamentals and/or technical information then the day to day activity of the markets tend to be nothing more then utter nonsense.

However if your a day trader well then its a different ball game all together. I am a long term trader and I find that the intraday noise of the markets is just too much bother and not enough gains. Long term traders can definitely gather a more concise analysis on market direction.
 

fxmarkets

Established member
834 50
hmmm, my first response was rubbed, what I said was should of been called "noise, seasoned traders ignore it" maybe, until it arrives at shouting levels.

point being, very skant detail on "how" and "learn" unless its purely ignore gossip...
 
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blackcab

Established member
523 51
The article is more about how the media works than the markets imho, and it's good to hear someone who was in the media admit that the absolute need to fill space is the only reason for the spurious guff and drivel you hear dressed up as analysis of price movements.
 

fxmarkets

Established member
834 50
yes agree, cabbie..... i was going to comment further the other day, quite frankly I was shocked but not at the same time........ they havent a bloody clue as to why prices move in a day session , however I think you can pay a sum to be fully enlightened.
 

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