Squelch Those Whipsaws by John F.Ehlers
What’s real price movement and what’s just noise? Figuring out the difference is vital, and here’s an objective measure to help you out.
Hey, good buddy! Ever operate a citizens' band (CB) radio? If you haven't, most CBs are relatively simple devices, usually with three controls: a channel selector, a volume control, and a squelch control. Squelch control is important to the operation of the radio because without it, there would be no way for the radio to distinguish between static noise and a real signal from a transmitter.
Such a distinction can also be important to your trading. If you could avoid periods when the market had no clear trend, you’d avoid whipsaws and get cleaner trades. If you could identify periods that were filled with noise and no clear data, you could also switch trading tactics to suit the situation. At the very least, you’d know what situation you faced.