Noise In The Market

I get tired of hearing many investors, or traders keep talking about the “noise” in the market.  They conveniently like to keep claiming that the market is moving just based on “noise”.  They like to use it as an excuse for their own poor market timing.  I hear this especially from stock investors, when they buy a stock and then it falls a good amount.  They keep claiming it is the “noise” of the market.  The noise of the market meaning that they can’t interpret the stock fluctuations.  They can’t assign proper meaning, or the market is not moving along some market fundamentals or sentiment as “it should be” in their minds.

Does noise in trading exist?  You betcha.  Trying to decipher why the market moved each every single pip or a 5 pip , or 15 pip movement can be very frustrating at times.  I tried to decipher every single tiny market movement years ago, and it got very frustrating.  Eventually I figured out to just focus on the easily identifiable moves and avoid banging my head against the wall trying to understand every 5 pip price movement.

The bigger the price move, the better chance you have to do identify why it happened and the reasoning behind it.  This means that explaining why the market moved 50 pips is generally a lot easier than figuring out why it moved 5 pips.  Following that thought, it generally is easier to figure out why the market moved 500 pips as opposed to 50 pips. And etc.

Which is why for small movements of 5-10 pips you can claim the noise excuse.  But if the market moved 500 pips, in most cases you can’t use the noise in the market excuse.  A 500 pip move is a pretty big move.  You should be able to decipher what order flow generators, series of order flow events, series of market participants, emotions of market participants caused the price to do what it did.

Have I seen 100 pip market movements that were difficult to explain and decipher?  Sure they exist.  And when they do happen, you just stay out of the market until you get plugged into the order flow and information flow again.

But there are all sorts of people out there using the noise in the market excuse.  Many of them are lazy to go figure out the order flow generators, and figure out what different market participants are battling it out.

If you want a cataclysmic edge in the markets, then you have to figure out why the market makes its movements down to a fairly decent level of detail.  I can assure you, most market movements can be explained.  Failure to explain them can be due to someones laziness in developing the order flow mindset, or lack of good knowledge available.

You have to figure out what caused the market to move.  It can be a combination of stops, option barriers, news, fundamental changes, temporary fundamental changes, sentiment, intervention, short squeeze, profit taking, macro, liquidity vacuums.  There are all sorts of combinations of order flow generators, market participants and market emotions.  Once you understand them all you can actually figure out why the market trends strongly, trends lightly, stays in range, reverses a trend slightly, or reverses a trend strongly.  Then you can actually go to capture some of the moves for yourself.

It is just that some people don’t want to get down and dirty to figure it out.  They are willing to spend endless amounts of time tweaking technical indicators and going through hundreds of forum threads, but they don’t want to spend time figuring out the very foundations of every market – order flow, liquidity, and volatility.

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