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Glossary · Trading basics

Noise

Small, random price fluctuations that carry no useful information about the next meaningful move.

By Sky Trade editorial teamUpdated

Market noise is the jitter around the real direction: tiny up-and-down moves caused by individual orders, quote updates and plain randomness. On a one-hour chart it is barely visible; on a five-second chart it is most of what you see.

The shorter your expiry, the larger the share of your result that noise decides. A trade expiring in 10 seconds is, for practical purposes, mostly a bet on noise: even a correct reading of the trend has little time to show up. That is why lower timeframes produce more signals and more false ones at the same time.

Traders reduce noise by:

  • analysing on a higher timeframe and using the lower one only for timing;
  • smoothing price with moving averages;
  • choosing expiries long enough for the idea to play out.

There is a subtler trap too: the human brain is very good at finding patterns in noise. A sequence like up-up-up-down-up looks meaningful but usually isn't. On Sky Trade's OTC instruments every tick comes from a random model, so short-term patterns there are noise by construction. See timeframes explained.

Example

On the S5 chart EUR/USD wiggles by about half a pip every few seconds, while the M15 trend gains 12 pips over the hour. A 10-second trade is decided by the wiggle, not by the trend.

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