Price noise — unpleasant small price fluctuations in a narrow corridor. Their main disadvantage is that:
- confusing for the trader that can receive false signals for impending market changes;
- interfere with the proper construction of figures of technical analysis and application of strategies;
- mislead automated trading system that can build charts on top of the price noise.
The causes of price fluctuations in a narrow corridor to the end are not described, since there can be many. Under the price noise known an unreasonable price change, not supported by any fundamental or logical reason. It’s kind of a price bubble, an unconfirmed change in the money supply in circulation.
Price noise: causes and elimination of it
The price can never be moving the same direction all the time. Anyway there will be those who opens and closes positions in small volumes, which leads to the appearance of zig-zag price movement. Best price noise is visible on the tick chart — the smaller the timeframe, the more pronounced price fluctuations.
The admission of price noise is often used by dealing centers “kitchen” (i.e. scammers). The appearance of price spikes can confuse a trader, and if artificially increase their range, the trader, working, for example, with scalping strategies, can take the price for noise correction.
Most price noise for the pending stop orders set at a very short interval. For example, a trader sets up a Buy Stop on the break of price channel and the price because of temporary fluctuations touched on the line by opening the transaction and instead growth continued to zigzag in a narrow corridor. The only possible exception of open trades at a price-noise — shift in 1 to 3 points when setting a stop loss, which is quite acceptable for short-term strategies.
Another way to avoid the influence of the price of noise on construction of a strategy — trade on the higher time frames. As practice shows, the price noise implies change within just a few points and is noticeable on M1 or M5. But on the hourly timeframe price the noise is almost not visible.
To sum up. Yes, the article was short, but I was able to focus on main aspects. Price noise is an inevitable companion of trade on short time frames, which can be offset by simultaneous opening of the daily chart in the neighboring terminal window. Price noise (and they are short) should be treated with suspicion, because at any moment it could end and leave through the main. And of course choose a reliable broker!