Use of Statistics for Trading Beginners

[nalin 10]

Hello guys,

I am not a serious trader yet, although I have been aware of this forum for some time.I am at the moment interested in statistics resources.

I dont have much knowledge beyond the normal distribution curve which I learnt in school (that too vaguely).I would require some advise on how a trader should proceed to increase his knowledge in statistics for trading.

I understand from the posts here the need for hypothesis and testing of a trading idea,but apart from a general idea I dont seem to be finding a detailed resources/software or books or to be read on the matter .

[Tams 20]

Moving Average is the most popular statistics traders use.

[nalin 10]

Thank you Tams for answering,

I was looking out for an answer in the context of deciding whether a trading idea is workable.

The below is a reproduction of what DbPhoenix had mentioned in one of his posts.

"The essential elements of the scientific method are traditionally described as follows:

 

- Observe: Observe or read about a phenomenon.

 

- Hypothesize: Wonder about your observations, and invent a hypothesis, (sometimes one's hypothesis is initially nothing more than a "guess"), which could explain the phenomenon or set of facts that you have observed.

 

- Test a hypothesis

 

- Predict: Use the logical consequences of your hypothesis to predict results (e.g., measurable experimental values) that must be found if the hypothesis is to be judged correct -- whether it is 'complete' or not.

 

- Experiment: Perform experiments to test those predictions. (Note that great precision regarding a negative result might not be required to falsify a hypothesis.)

 

- Conclude: Failure to see the predicted results from a well designed and implemented experiment is clear indication that the hypothesis is defective. Try again. Seeing the predicted results is an indication that the hypothesis is acceptable though not 'confirmation' or 'proof' of its correctness.

 

- Evaluate: Search for other possible explanations of the result until you can propose no better account of your data. Formulate a new hypothesis which may better explain the experimental data and the original observation."

 

I am not sure how to proceed furthur from 'test the hypothesize' stage.

It is my understanding upto now that this stage involves statistics whereby I should be testing the trading idea.

I am not sure how I should be testing it to determine it is workable or not.

 

Thanks

Nalin

[sevensa 10]

Check out the book: "Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals" by David Aronson.

 

There are also several other trading system and testing related books. Just do a search on Amazon.

[Tams 20]

first, you have to come up with a Hypothesis.

 

let's just make an example...

 

Hypothesis "HHLL-1"

 

if the price trades higher than the previous bar's HIGH, the market will go higher.

 

 

you can then make observation and collect data to test this assertion.

[DbPhoenix 42]

The below is a reproduction of what DbPhoenix had mentioned in one of his posts.

"The essential elements of the scientific method are traditionally described as follows:

 

- Observe: Observe or read about a phenomenon.

 

- Hypothesize: Wonder about your observations, and invent a hypothesis, (sometimes one's hypothesis is initially nothing more than a "guess"), which could explain the phenomenon or set of facts that you have observed.

 

- Test a hypothesis

 

- Predict: Use the logical consequences of your hypothesis to predict results (e.g., measurable experimental values) that must be found if the hypothesis is to be judged correct -- whether it is 'complete' or not.

 

- Experiment: Perform experiments to test those predictions. (Note that great precision regarding a negative result might not be required to falsify a hypothesis.)

 

- Conclude: Failure to see the predicted results from a well designed and implemented experiment is clear indication that the hypothesis is defective. Try again. Seeing the predicted results is an indication that the hypothesis is acceptable though not 'confirmation' or 'proof' of its correctness.

 

- Evaluate: Search for other possible explanations of the result until you can propose no better account of your data. Formulate a new hypothesis which may better explain the experimental data and the original observation."

 

I am not sure how to proceed furthur from 'test the hypothesize' stage.

It is my understanding upto now that this stage involves statistics whereby I should be testing the trading idea.

I am not sure how I should be testing it to determine it is workable or not.

 

Thanks

Nalin

 

It doesn't necessarily involve statistics. The rest of what you've quoted can be found here. And if you continue to have trouble figuring out what to look for, check here, here, here, here, and, if you are thinking about daytrading, here.

 

If you have any questions, feel free to ask.

[BlowFish 10]

Ahh the good ole 'scientific method' many and varied applications

[Frank 10]

these days you can download data into excel for free and manipulate data so easily -- I would start there. if you need a guide, start with a basic book and move your way up --- there are countless books written on excel for statistics. flip through some in the book store and read the reviews on amazon.

[robertm 10]

Get hold of a book called "Against the Gods - The Remarkable Story Of Risk" if you have some spare time. It's more historical and theoretical than practical, but it will get you thinking about all things related to Risk/Probabilities.

[forexsmith 10]

good stuff thsi can help me

[Frank 10]

I just did quick search on Amazon -- these dummies books get great reviews cause the publisher can lure the best writers to the very successful brand. This one goes from the very simple to the intermediate and makes everything simple ---- and then there is a second book on intermediate statistics. I find it pretty ironic to be discussing 'LINEST array functions' in a 'for dummies' book --- don't let the title fool you. This books materials starts very easy and then takes off with useful topics.

 

I was flipping through a C#.net programming book for dummies --- I am way below dummy I guess cause C# is dense stuff. I mean seriously, how many dummies can program in C#?

 

Amazon.com: Statistical Analysis with Excel For Dummies (For Dummies (Computer/Tech)) (9780470454060): Joseph Schmuller Ph.D.: Books

 

For a good overall reference book on excel, I recommend this one:

 

http://www.amazon.com/Special-Using-Microsoft-Office-Excel/dp/B000OZ0NF8/ref=ntt_at_ep_dpt_4

Edited November 5, 2009 by Frank