084: Handling noisy markets

This episode of the Better System Trader podcast features an interview with Perry Kaufman, discussing the evolution of market noise and its impact on trading strategies. Kaufman explains how increased market participation and technology have led to greater market noise, making it harder to identify trends. He contrasts the challenges faced by trend followers versus mean reversion traders in noisier markets and suggests that newer, less developed markets are better suited for trend-following strategies due to lower noise levels. He uses his "efficiency ratio" to measure market noise, highlighting the U.S. markets as the noisiest and suggesting strategy adjustments based on market noise levels. The interview concludes with a recommendation to utilize short-term mean reversion strategies in noisy markets and trend-following strategies in less noisy markets.