The trader generally has to transform a price data series into trading signals, but price data itself is very noisy. It is similar to trying to tune into a radio station through a lot of static. It is hard to tell what is important, and what is just random noise.
Noise is the non-tradeable component of price data. If you try to trade it, you will significantly reduce your profits. Clearly, the problem at hand is to isolate the noise from the signal. This smooths the price series so that the underlying direction is highlighted.
This problem is well defined in signal processing and some quite advanced and effective techniques are available, but often traders use very crude approaches. I will start in this posting by discussing the traditional approaches and how they work.ForexGen strives to give incomparable professional and individualized trading services.
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