Statistics for Traders

Statistics is one of the most misunderstood and abused subject in mathematics (and science). The reason is something we can all easily understand – statistics is something we can all sort of relating to but counter-intuitive when applied in event by event situations.

Our brains are wired that way so that our ancestors can survive in nature. Since human has not evolved into any better forms for quite some time, yet our civilization is advancing in such a pace that even our computers are outdated every year or two, our minds are not that cooperative when it comes to making decisions that are drastically different from the ones that our ancestors faced. The ability to adapt our minds in making proper trading decisions boils down to our ability in applying logical thinking and statistical analysis properly.

It all sounds so complicated but in reality all you have to do is to take time understanding some basic concepts in statistics, then utilize the distilled rules and concepts to make better trading decisions, as oppose to relying on our gut feelings.

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ES 24 Hours 30-Min Distribution Study 4_20120212_032412
Emini S&P Afterhours Behaviour Part 3 – Distribution Study on AH Range  member only

AH Range Distribution Following is the distribution of AH range for Emini S&P since mid 2005. [DTBMember] Important observations from the distribution. 1. There is no mistake that it is a classic t-distribution. The right side count spi ...


Quantum Mechanics and HFT

Quantum Mechanics sounds like it has nothing to do with High-Frequency Trading (HFT) except the fact that they both have sound bites coming from an alien planet. However, if you examine the concept of HFT closely, you would be surprise that some prin ...

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S&P Week Range Behaviour

A simple statistical exercise showing how S&P weekly trading range is closely related to and affected by its prior week’s trading range. The Distribution Following is a distribution chart of the weekly trading range represented in percentage te ...

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Inside Gap Behaviour

This is the second instalment on emini S&P gap behaviour. The first one is Outside Gap Behaviour, Now and Then. Inside gaps are gaps that do not have the open price printed outside of the previous trading day range. Fashioned in the same style ...

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Lunar Cycle - Long Only Model  member only

I have one of my guys worked on this and here is the result of a trading system based on lunar cycle that looks like it works. ...


ES 5-min QE Buy_20110617_154157
Impact of Quantitative Easing on Stock Market Indices

Everyone on the street talks about Quantitative Erasing and that it is messing up the markets, causing inflations, etc. Can we really identify the characteristic change in the S&P that distinctly separate its behaviour from its normal self, or, is th ...

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Outside Gap Behaviour, Then and Now

Many traders who daytrade emini S&P probably are familiar with the gap fill bias. What I am going to show here is how a particular type of gap fill, outside gap, has changed over time. Gaps are created when a market open at a price different from ...


Nasdaq 100 Down 2% Trading Setup  member only

On a day when Nasdaq 100 is down 2% from its previous day close, something very interesting is likely to happen within a day or two.

Following is a table of Nasdaq 100 emini from September 2003 to March 2011 showing the statistics related to the 2% drop phenomenon.



Misunderstanding of Trading System Designs

Most retail traders misunderstand that trading systems are created by ad hoc grinding in trying out all kinds of rules to see if a system is profitable (or whatever metric you like to use as the performance yardstick). Here is a short summary of the ...

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Some Thoughts on "Nassim Taleb on Living with Black Swans"

First it is a good read - Nassim Taleb on Living with Black Swans Several interesting parallels on Nassim's take on the current situation in the financial system to individual traders or trading models - Traders who never experienced significan ...

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