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An Argument for Statistics (Part 4)

In my opinion, trading system development is similar in importance to hypothesis testing and inferential statistics in addition to being something most traders don’t know much about.

Aside from my familiarity with statistics, I am a student of trading system development. Trading system development looks at measures related to profitability, consistency, drawdowns, and much more.

While I find this all interesting and potentially very useful, at the outset maybe I just want to know if my system is better than trading at random. Maybe I just want to know if my system is better than zero profitability. These are questions that lend themselves to inferential statistics because the null hypothesis would say “the system is not profitable.”

In the final analysis, I think we have at least two different approaches to trade validation. One approach involves hypothesis testing and inferential statistics. Aside from those with research backgrounds of some sort, I’m not sure who might think to employ statistics for this purpose. I think trading system development is more popular among algorithmic traders and those employed in finance since it uses parameters and jargon created specifically for the industry.

Perhaps the two are accomplishing the same thing but from completely different theoretical angles. I may never know.

Comments (1)

[…] Unfortunately, I remain weak in that area so I turned to the old standby: MS Excel. My plan is to use inferential statistics rather than a trading system development approach. […]

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