Stats Rule!

Here’s an important quote from Nassim Taleb, celebrity author of Black Swan and Antifragile, “Whether it’s Covid, vaccines, Bitcoin, or stuff about elections, we’re swayed by the anecdote. So, our world is becoming more complex, requires more statistical sophistication while social media is driving us to the most primitive way of thinking.” 

Basically, he’s saying that we can be swayed by single or random events or stories rather than robust statistical analysis, adequate numbers, and scientific rigor. 

This pertains to trading perfectly. You see a one-off winning event and are wanting to repeat it. Maybe it even happened a few times. But how robust is that analysis? Not at all. 

Before changing your plan or trading the anomaly you just saw, do some research. If you’re able to code the event in back-testing software like EasyLanguage from TradeStation, do it. If not you’ll need to scan the prior price charts by hand. 

What are you looking for? Start with a sample size of 30 events. If they showed a positive result you might have found something. The problem is the sample size is small, your margin of error is around +/-18%. So it’s worth doing a bit more research. Get to a 100-trade sample size and your margin of error drops in half. Now you’re motivated to continue the research. 

Our trading teams focus on multiple strategies for day trading futures and high-probability candidates for swing trading options. You can learn either or both risk-free. Join us.

To your trading success,

Mike Siewruk

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