randomness
Noise versus signal
The rule
Most daily price moves and chatter are just random wiggles wearing a costume of news. More data can mean more noise, not more truth.
Where it flips
Not every move is noise. Sometimes a price move is the first hint of a real fact you have not seen yet. The fix is to look for the document behind the move. Do not brush off every move as random.
A price moves up and down for a thousand small reasons that cancel out. Yet after the fact, every wiggle gets a confident story. Watching the screen more often does not add knowledge. It only adds random ticks, which your mind then reads as meaning. The reader who checks less, and studies the slow facts more, finally sees the real signal.
A worked example
A stock falls two percent on a quiet day. Three news feeds call it 'profit-booking'. Next morning it recovers with no news at all. The fall was just noise, and the reason was made up to fill the silence. [illustrative]
How to spot it
- ·a confident reason stuck onto a tiny move
- ·stories that change every hour
- ·more screen-checking called 'research'
- ·chatter with no original source behind it
Nassim Nicholas Taleb · Fooled by Randomness