Price noise is a very unpleasant phenomenon, which is a sudden price jump, a surge in price, not confirmed by trading volumes. In other words, it is a price bubble that is not supported by a real asset or fundamental factors. Price noise can be dangerous for a trader for the following reasons:
- A sudden price change can be accepted by a trader for reversal or the appearance of a trend. Price change can be taken as the main signal, and in fact it turns out to be false;
- drastic schedule changes prevent the correct construction of technical analysis figures and the application of strategies;
- Expert Advisors may misinterpret price movement by building a trend line at the top of price noise.
The nature of this phenomenon is completely diverse and not fully described. This may be the reaction of small traders to the purchase or sale of an asset by stronger players, perhaps global market uncertainty, etc. In any case, price noise has no fundamental and logical rationale.
- Important: “kitchen” brokers use price fluctuations to get hold of the client’s money! Since the price noise can be accepted by the trader for correction, the broker can artificially increase the range of fluctuations so that the trader makes a wrong decision or that the stop loss is hooked.
Methods of dealing with price noise
The exchange market is unstable – one way or another, the price chart will fluctuate in different directions, and the only way to exclude it is to increase the timeframe. For example, if a rollback of 50 points occurs on H4 (on the chart this is just a small correction), then on M5 the price movement can be taken as a trend change.
Most of the price noise prevents traders who work with pending stop orders that are set at a short distance from the price. For example, a trader puts Buy-Stop to break through the price channel, while the price due to unexplained factors only touched the level, opening a deal, and remained in a narrow price corridor. We see the only solution to the problem of installing a stop-loss at a distance of 1-3 points.
And finally, the third solution is to use additional programs, for example, Autochartist. The program builds technical analysis figures, eliminating false signals and ignoring price noise. By the way, InstaForex clients can download this program for free.
Summary: you cannot avoid price noise, but you can and should fight it. Work at the same time on a large and small timeframe, do not forget about insuring your position with stop loss and use additional programs that can quickly determine the exact trader’s entry signal to the market. And of course, stay with the FxCash rebate service, whose analysts always prompt the right decisions!