Bid-Ask Bounce

Bid-ask bounce is the small, alternating price movement produced by trades arriving on opposite sides of an unchanged market. If buyers and sellers take turns, the last traded price flips between the ask and the bid while the underlying quotes stay exactly where they were, and a chart built from traded prices shows movement that nobody's opinion caused. It is a measurement artefact rather than a market event, and it matters wherever very short intervals are being analysed. Volatility calculated on tick or one-minute data is inflated by it, apparent mean reversion can appear in a series that contains nothing but bounce, and a strategy backtested on last-traded prices may be trading noise that does not exist in the quotes at all. Working from mid-prices, or from longer intervals, removes most of the effect.