Handling market noise
Market noise refers to the random fluctuations and irrelevant information that can obscure the underlying trends or signals in financial markets. It can include various factors, such as rumors, news headlines, speculative trading, and other short-term market movements that are not based on fundamental factors or long-term trends.
There are two different ways to address the noise issue:
- Entry confirmations
- Volatility bands
Entry confirmations
We can ask the system to wait for a confirmation before opening a new trade. A confirmation could be a close above the moving average for two consecutive days, so we can write the following:
EntryCondition=Close>average(close,Len) and Close[1]>average(Close,Len)[1];
In this example, our entry condition will be both the current close above the current moving average value and the previous close above the previous moving average.
In Figure 3.14, we can see the performance report with entry...
