Title: Noise
Headings: Noise
Noise
What Is Noise?
Key Takeaways
Understanding Noise
Noise and Time Frames
Causes of Noise
Having a System: The Alternative to Noise Trading

Content: The concept of noise was formally introduced in a landmark 1986 paper by economist Fischer Black, where he stated that "noise" ought to be distinguished from "information" and that a disproportionate amount of trading occurred on the basis of noise, rather than evidence. All trading is somewhat speculative, but noise traders are considered to be particularly reactionary, relying on trending news, apparent surges or declines in prices or word of mouth rather than the fundamental analysis of companies. Noise and Time Frames
Typically, the shorter the time frame, the more difficult it is to separate the meaningful market movements from the noise. The price of a security can vary widely throughout a given day, but almost none of this movement represents a fundamental change in the perceived value of the security. Day traders trade short-term movements in a security with the goal of entering and exiting a position within minutes or hours. Some noise traders attempt to take advantage of market noise by entering buy and sell transactions without the use of fundamental data. A longer time frame can provide a clearer picture of a trend. For example, a stock might swing wildly on earnings news for a few hours. However, when comparing that price movement to the trend over the past few months, the earnings move might be small relative to the overall trend. Only hindsight provides assurance of the credibility of information and whether the recent news or events will impact the trend.