Signal and Static Noise in XOM

Dec 11, 2008: 1:32 PM CST

Wouldn’t it be nice if stocks followed a clean, swinging pattern from one point to another?  Usually we can trace that pathway with little interference but recently in Exxon-Mobil (XOM), we’re seeing a high noise to signal ratio that’s worth a closer look.

Exxon-Mobil (XOM):

Coming into October, XOM behaved like it ‘should,’ meaning that each day’s range was relatively contained and there was a clean pathway of movement undulating up and down on the chart… that is until October hit and daily range exploded, where the trading activity got erratic and random and it would have been the bast play to avoid this stock due to the low signal (trades) concurrence.

I drew a green mark where the change roughly began. You can also see the change take place in the momentum oscillator, comparing pre-October to post-October.  Look at how erratic and sharply/wildly the swings (spikes) are in the 3/10 Oscillator – almost random.

Trace the price with your finger from the start of October.  Down big, up big, down big, up big, down big, up big, then try to follow the thick choppiness price experienced through November.  What does a trader do?

Luckily, you (most likely) are not required to trade XOM stock, or any stock that exhibits a high randomness factor (as you perceive it).  Don’t try to read into the price chart more than you can see at a quick glance – if it doesn’t make sense, move on and don’t feel upset about it.  Move on perhaps to an ETF or one of the other thousand or so stocks out there that you deem appropriate to trade.

Stay with stocks that match the way you interpret price behavior, indicators, and signals (trade set-ups).  Go where your skills seem most in-line with the current price action.

And by all means avoid as best you can charts that don’t seem to make sense to you – your mind, and your trading account, will thank you.

Corey Rosenbloom
Afraid to

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