What is noise?

[Calinor]

This is in part motivated by arabianights interesting observation that people lose because they are paying a spread to trade noise, but also some thoughts I have been having recently about trading.

In a trading context, what do you consider as noise and why? Is there such a thing as noise on a traded instrument?

Also, some people have stated that on low timeframes that is all just noise. I don't personally agree with that, but for argument's sake, if it were all noise then it would be all noise on a higher timeframe too. So is it just that the signals are harder to detect/the noise harder to filter out on lower timeframes?

 

[BSD]

Noisy Noise.

 

[Claudia123]

oh oh oh you got a lot to learn. Compare a 4 hour tf with a 1 minute. See a difference ?

 

[Calinor]

Lol, we all have a lot to learn don't we? I certainly do, and not just about trading.

Sure when trading there is a difference in importance between a 4 hour and a 1 minute, especially when considering support levels but just looking at one, not as much as you'd think. Take the scales off the chart and look at a short timeframe and a longer one, if you're honest with yourself, the difference is not as clear cut as your post above made it sound, you have to look pretty closely. And it wouldn't take too much hard work for me to find a low tf that looked like a long timeframe in behaviour and vice versa. Also there is a difference between GBPUSD and EURUSD. But that still doesn't give an answer:

What do you consider noise, and why?

 

[BSD]

Err, mate, did you read my link ? You need to click on that.

 

[Claudia123]

Noise is the big boys playing with big bucks and taking it off the little boys. Its the institutions with big order flows beating the hell out of small retail traders.

 

[Calinor]

Yes I did BSD. In particular

What remains are market makers and scalpers who play for ticks within narrow ranges, making money between bids and offers.

is a possible way of defining noise. It is not really noise in the classical sense though is it? And it is also possibly tradeable (albeit we would often be better staying out of chop unless our style is good for chop).

Noise is the big boys playing with big bucks and taking it off the little boys. Its the institutions with big order flows beating the hell out of small retail traders.

Is this really your definition of noise Claudia? Aren't they doing this all the time anyway

 

[BSD]

Noise is the big boys playing with big bucks and taking it off the little boys. Its the institutions with big order flows beating the hell out of small retail traders.

I guess that actually makes a lot of sense.

When there aren't big bucks generating strong smooth moves - a great definition of volume - most of us will be fakedout-shakedout like theres no tomorrow by spikes and constant reversals on a cent with no carry-through.

Hence the importance of only trading when there is strong volume that creates sustained, directional moves.

Calinor, I honestly believe that most people could dramatically increase their chances of becoming net profitable by only trading when there is volume and the market is trendy.

If you want to play choppy markets transaction costs will kill you unless you have the low fees that exchange members have.

 

[Calinor]

Oh I'm not disagreeing about the benefits of only trading when things are favourable to your trading style (when it is really moving). If things aren't moving much then the spread is quite large relative to the size of the move and therefore your profits are diminished. I am interested in what people consider noise though. Because people manipulating the market because there isn't much volume doesn't seem like noise to me. Those are signals. And they are in fact tradeable. A lot of systems are great in trending times, but there are some systems that are good in chop.

 

[cuotes]

So, according to mr Brett Steembarger noise is when we don't go higher neither go lower.
If the market is choppy, we can call it noise. Is it right, Markus?

In that moment, and also according to mr Brett, the market is dominated by marketmakers. And they are making money at that time. So, it isn't noise from their point of view. Right?

I've read something about different types of noise (white, pink...) and to summarize I would call noise to that price-action that don't interfere with the main trend. Let's think of the main trend as the trend that follow the price in your timeframe.

In other words, I understand noise as the price action that create a minitrend smaller than my timeframe. That little changes that make you nervous and force you to take bad decisions.

I reckon this definition match with Steembarger's scheme.

I don't know if I made clear myself. I'm affraid not

 

[BSD]

So, according to mr Brett Steembarger noise is when we don't go higher neither go lower.
If the market is choppy, we can call it noise. Is it right, Markus?

In that moment, and also according to mr Brett, the market is dominated by marketmakers. And they are making money at that time. So, it isn't noise from their point of view. Right?

Agree with that. (Although I'm getting a bit drunk and my reasoning isn't at it's sharpest anymore haha.)

But the only reason marketmakers can trade that profitably is because they pay next to nothing in trading commissions.

That said, even people like Don Miller, who is a member at the CME and made 2 million last year stays away from the chop when there isn't big money creating big moves.

 

[cuotes]

Absolutely!
All of us had better "stay away from the chop when there isn't big money creating big moves"

Enjoy your drink man :cheers:
Glad to meet someone that also follow Brett's Traderfeed blog

 

[tar]

its ok to trade on lower time frams charts but the problem is when u pay a big chunk of the average true range on spread and commissions , for example : 1 minute ATR for the Euro spot is around 3-4 pips and the spread is around 1-2 pips !! , and the 1 hour ATR is something around 30 , here the costs will be 5% and 30 - 50 % on the first example . Unless u dont pay spread like marketmakers ...

 

[arabianights]

price moves due to imbalances in orders... I would call the moves noise when said imbalances are occurring for no particular reason, which is most of the time.

 

[TAjammy]

i just thought it was price lying to you, surging higher and surging lower but not continuing

 

[Calinor]

price moves due to imbalances in orders... I would call the moves noise when said imbalances are occurring for no particular reason, which is most of the time.

I like this line arabian, concise and thought-provoking. Let me ask you though...price bouncing at support is an imbalance that is occurring for no fundamental reason. Is this what you consider 'no particular reason'? Or would you consider that a valid reason, and hence not noise.

 

[Christiaan]

I don't agree 100 %.You see I look for opportunities on a five mintute timeframe and yes someday it is all just noise but there are however many days where you get clean cut high propability trades.Ofcourse when trading on such a small timeframe looking towards longer timeframes for the trend is very important.

I don't know how to post pics in this forum but I would be happy to show you that smaller timeframes is not just a bunch of noise not all the time anyway and there is plenty of opportinity to trade if you leave me your e-mail address I could e-mail you a few intersting charts all of them taken on 5 min frame.

 

[glyder]

i think noise is the bits that happen while you're waiting inbetween your trades.
one mans noise is another mans dosh..

 

[Calinor]

I don't believe low-timeframes are all noise either Christiaan.

I look for opportunities on a five mintute timeframe and yes someday it is all just noise

But what makes you say that? I mean, in order to write what you wrote above, you must have a definition of noise. What is your definition?

 

[Technically Fundamental]

I always thought that the diff between these two was noise