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I'd like to think this tool could be useful when converting small b/w images, but more often than not I am dissatisfied with how noisy the vector work is -- too many anchors scattered around creates more work than if I were to hand trace the image.

Is there any way to mitigate this?

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There's certainly things you can slide around and adjust, but in all honesty there isn't one set of options that'll be ideal, it varies from image to image. Personally I've found tracing it myself, while less time efficient gives me more control over the final result anyway. I only ever use live-trace for quick mock-ups and such. – Johannes Nov 19 '11 at 19:32

The key word in your question is "small." Live Trace turns pixels into vectors, and it works by edge contrast, so the larger the pixels are in relation to the total image size, the more "jaggies" will appear in the trace.

This gives you two main ways to control the number of anchor points generated by Live Trace: use the largest image you can (or upsize it in Photoshop beforehand -- about the only case where upsizing an image is justifiable); and use the Blur function within the Live Trace dialog to smooth out the pixel edges.

You can play with other parameters in the Live Trace dialog, but these two are the main ones that will help to give you a smooth output.

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