All markets have a normal level of noise. The stock index markets have the greatest amount of irregular movement due to its extensive participation, the high level of anticipation built into the prices, and because it is an index. This is contrasted to short-term interest rates, which have large participation but little anticipation and a strong tie to the underlying cash market. In comparison, long-term rates allow for greater movement away from the cash market. The normal level of noise can be seen as the consistent daily or weekly trading range on a chart of the DJIA or S&P When volatility declines below the normal level of noise, the market is experiencing short-term inactivity An increase in volatility back to normal levels of noise should not be confused with a breakout.
This same situation can be applied to a triangular formation, which has traditionally been interpreted as a pause within a trend. This pattern often follows a fast rise and represents a short period of declining volatility. If volatility declines in a consistent fashion, it appears as a triangle; however, if the point of the triangle is smaller than the normal level of market noise, then a breakout from this point is likely to restore price movement to a range typical of noise, resulting in a flag or pennant formation. Both of these latter patterns have uniform height that can include a normal level of noise.