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Do you think statistics work in trading?

  • #41
  • Aug 1, 2013 11:19am Aug 1, 2013 11:19am
Trading without statistics = guessing, gambling. Statistics are needed to find an edge. Statistics are needed to validate that edge. Statistics are needed to apply the edge. Statistics are needed to keep that edge sharp.
"To hold, you must first open your hand. Let go." - Lao Tzu
  • #42
  • Aug 1, 2013 11:20am Aug 1, 2013 11:20am
forex is not a math formula or an exact science anything can happen and the trend can change or reverse at any moment !
  • #43
  • Aug 1, 2013 4:17pm Aug 1, 2013 4:17pm
Quoting aketo25
forex is not a math formula or an exact science anything can happen and the trend can change or reverse at any moment !
We're discussing statistics, not algebra. Info: http://en.wikipedia.org/wiki/Statistics .
"To hold, you must first open your hand. Let go." - Lao Tzu
  • #44
  • Aug 1, 2013 4:34pm Aug 1, 2013 4:34pm
Quoting PipMeUp
No need for MC, a histogram is enough. The 50% up/down is true. This is true for any TF. I even looked at range bar chart, same thing; except you get a M-shaped bi-modal distribution. Even taking the previous bar into account doesn't improve the forecast. When you find a good forecaster (kalman, ARIMA or whatever) it comes with a big confidence interval...
I think you're overlooking that sometimes price doesn't move up or down. Sometimes, it just sits there going to the right.
Play the players, not the cards.
  • #45
  • Aug 1, 2013 4:49pm Aug 1, 2013 4:49pm
Quoting vox dei
Trading without statistics = guessing, gambling. Statistics are needed to find an edge. Statistics are needed to validate that edge. Statistics are needed to apply the edge. Statistics are needed to keep that edge sharp.
As a poker player, having statistics of the hands that I need to hit are vital to me. If I've got 5 6 suited, and the first three cards come out 3 4 8, with the 3 and 4 being the same suit as my hole cards, then I've got 9 cards to hit my flush, 8 to hit my straight, and 6 to hit a pair. Though, in poker, one usually doesn't try to pair the cards with low cards, so we'll just use the number 17.

I've seen my two cards, and I've seen three community cards. Out of a 52 card deck, that leaves 47 cards left in the deck, regardless of how many players are playing. So I've got a 17/47 chance of hitting what I need. However, just because I may know the statistics of getting a draw board with low suited connectors doesn't mean I can just simply go all-in on the hand. I have to know the statistics for the other players. Do they play with any two cards or are they selective? How likely are they to fold to a 3 bet, or how likely are they going to lead out?

If we could know how aggressive an interbank is, we'd be that much more likely to know the odds of what price will do. However, we'd also have to know who's in the hand at the time. Is a hand over at the end of the day? Or is it over after an entire position is built up through a week or so due to having such a massive stack that getting it all in right then and there is actually losing value?
Play the players, not the cards.
  • #46
  • Aug 1, 2013 5:42pm Aug 1, 2013 5:42pm
Quoting GnarlyPips
{quote} As a poker player, having statistics of the hands that I need to hit are vital to me. If I've got 5 6 suited, and the first three cards come out 3 4 8, with the 3 and 4 being the same suit as my hole cards, then I've got 9 cards to hit my flush, 8 to hit my straight, and 6 to hit a pair. Though, in poker, one usually doesn't try to pair the cards with low cards, so we'll just use the number 17. I've seen my two cards, and I've seen three community cards. Out of a 52 card deck, that leaves 47 cards left in the deck, regardless of how many...
Poker and forex have much in common. Money management, thinking in terms of probabilities, learn to sit and wait, etc

It's a fact that one will never have knowledge of all the variables affecting price to be able to 100% accurately predict up, down, or sideways. Fortunately, it's also a fact that one does not need to know everything to trade profitably. There are times when more/better information is known, and that's sufficient to provide higher probability trade opportunities.
"To hold, you must first open your hand. Let go." - Lao Tzu
  • #47
  • Aug 1, 2013 7:18pm Aug 1, 2013 7:18pm
Trading can be gambling or not. Depending on your attitude. If you are counting on luck then it is gambling. If you are gambling long enough you lose as anyone in the casino. In this regard Forex is like casino roulette. You can bet on any number, or on black or red, but you know that in any case you lose long term because on roulette you cannot possibly turn odds in your favor.

So are wasting time and money here? I think not. Unlike roulette the outcome is not fixed and you can turn odds in your favor. However rare the success stories confirm that. That means the market is not random and successful strategies exist. The question is i fit is possible to find them using the data available to us and using statistics or something else is required. And here I would like to hear your opinion.


We all understand the importance of sentiment and fundamentals to forex, but here I want to discuss the statistics and other quantifiable stuff. I do not know how about others, but I personally lost more money because of my wrong bias (based on fundamental and sentiment) than statistics or TA. At some point I even stopped trading majors because of this bias and started trading some weird pairs like AUDNZD and CADJPY.
Wookey
  • #48
  • Aug 1, 2013 9:06pm Aug 1, 2013 9:06pm
guys interesting to see statics been discussing here.It all depends on your comfort level and confidence.but i must say its alone is nothing but to combine with fundamental analysis can give you good results.
  • #49
  • Aug 2, 2013 7:41am Aug 2, 2013 7:41am
Quoting aketo25
forex is not a math formula or an exact science anything can happen and the trend can change or reverse at any moment !
AFAIK probabilities are part of mathematics.

Quoting GnarlyPips
{quote} I think you're overlooking that sometimes price doesn't move up or down. Sometimes, it just sits there going to the right.
You are correct that the mode of the PDF is indeed centered on zero (see post #12). But the question was about the probability of a move of X pips up or down. That is given X>0.

Quoting wookey
... but here I want to discuss the statistics and other quantifiable stuff
I tried to focus on quantifying the optimization of a trade given you have an edge. When shall I trail my SL to 0? Shall I take partial profits? Shall I add to a winner? Don't hesitate to check my maths as I wish I am wrong: http://www.forexfactory.com/showthread.php?t=411923
No greed. No fear. Just maths.
  • #50
  • Aug 2, 2013 9:40am Aug 2, 2013 9:40am
Quoting PipMeUp
I tried to focus on quantifying the optimization of a trade given you have an edge. When shall I trail my SL to 0? Shall I take partial profits? Shall I add to a winner? Don't hesitate to check my maths as I wish I am wrong: http://www.forexfactory.com/showthread.php?t=411923
I remember reading this excellent paper, but forgot the author. Great job PipMeUP. IMO, that's WAY ahead what's needed to know to trade. A basic understanding of statistics is a must have though.
"To hold, you must first open your hand. Let go." - Lao Tzu
  • #51
  • Aug 21, 2013 9:53pm Aug 21, 2013 9:53pm
I think that trading is purely a mathematical endeavor. The reason many people disagree with this is they think mathematics is limited to statistical studies which don't include the human element. But statistics is just one of the four main areas of mathematics - the other three being structure, space, and change. All four areas of mathematics are relevant to trading and need to be understood. A proper study of space (volume) as it applies to trading would include human psychology.
si hoc legere scis nimium eruditionis habes
  • #52
  • Aug 21, 2013 10:20pm Aug 21, 2013 10:20pm
Quoting numbnuts
A proper study of space (volume) as it applies to trading would include human psychology.
And how would you apply mathematics to human psychology ?

That is, if only mathematics mattered ??
When the Joker is in the deck.. fear not and play it well
  • #53
  • Aug 21, 2013 10:55pm Aug 21, 2013 10:55pm
Quoting Slim Buffett
{quote} And how would you apply mathematics to human psychology ? That is, if only mathematics mattered ??
You don't apply mathematics to psychology, you apply psychology to mathematics.
Once you have accounted for structure and change, human psychology is the major component of space.
si hoc legere scis nimium eruditionis habes
  • #54
  • Aug 21, 2013 11:12pm Aug 21, 2013 11:12pm
Quoting numbnuts
{quote} You don't apply mathematics to psychology, you apply psychology to mathematics. Once you have accounted for structure and change, human psychology is the major component of space.
Oh... OK, I think I got it

"If you can't dazzle them with brilliance, baffle them with bullshit."

All the best.
When the Joker is in the deck.. fear not and play it well
  • #55
  • Aug 21, 2013 11:24pm Aug 21, 2013 11:24pm
Quoting Slim Buffett
{quote} Oh... OK, I think I got it "If you can't dazzle them with brilliance, baffle them with bullshit." All the best.
Yeah. You hit the nail on the head with that one. Like the pic in your profile says - "be careful what you put inside" - there is a trading related matter to discuss and debate, and an out - a silly distraction to dangle in front of your face like car keys to a toddler. Have fun.
si hoc legere scis nimium eruditionis habes
  • #56
  • Aug 21, 2013 11:30pm Aug 21, 2013 11:30pm
Buffett,

No, no... I must interfere with regard to your (Buffett's) rudeness. Ignorance is an enemy to listening. Numbnuts has made an important point. He does not argue about the specifics, but states general statement that cannot be denied.

Numbnuts,

Now, kindly, I would like to ask for specifics of what you shared. Are you willing to elaborate more on the topic? Perfectly share your mathematical variables and what is their corelation that governs the price/volume movement?

Regards.
  • #57
  • Aug 21, 2013 11:41pm Aug 21, 2013 11:41pm
Quoting numbnuts
{quote} Yeah. You hit the nail on the head with that one. Like the pic in your profile says - "be careful what you put inside" - there is a trading related matter to discuss and debate, and an out - a silly distraction to dangle in front of your face like car keys to a toddler. Have fun.
I assumed Slim was being sarcastic and hostile here, on second reading maybe he wasn't
If not then I apologize
si hoc legere scis nimium eruditionis habes
  • #58
  • Aug 22, 2013 12:24am Aug 22, 2013 12:24am
A doctor with theoretical experiences told a doctor with practical experiences ..........
  • #59
  • Aug 22, 2013 2:46am Aug 22, 2013 2:46am
Quoting Slim Buffett
how would you apply mathematics to human psychology ? That is, if only mathematics mattered ??
There are math models of herd behavior. Here a simplistic one with birds: http://www.red3d.com/cwr/boids/
I lost the references but there was also a model made on how a crowd in a mall would reach the exits if a fire started. Also a research team investigated how people board a plane and showed how this could be easily improved by like 2 minutes. When you know airlines pay by the minute on the tarmac it's not negligible.
I don't think it's non sense to model herd behavior in the market.
No greed. No fear. Just maths.
  • #60
  • Aug 22, 2013 6:59am Aug 22, 2013 6:59am
I will try to elucidate my opinion, I don't know if I will succeed. I'm not usually good at expounding the shit in my head.

Most people here see mathematics as a cold hard science, a simple system of numbers and facts which attempt to quantify everything. On a higher level though math becomes as much art as science, an abstract view of ebbs and flows that cannot be measured. Unlike OP I am not a mathematician but as a kid I was dragged from class and thrown into every regional and national math contest the school could draft me into, and that is kind of how I was taught to look at the world. You don't get far in those contests if you just see math as a science, by ignoring the discretionary side of it you are just scratching the surface of understanding.

Now math as I attempt to apply it to financial markets. I am not saying this is the right way to view trading or other views are wrong, it is just my way. Like I said mathematics in simple form is the study of four areas - structure, change, space and statistics.

Structure - Market structure is obvious. It is the system into which people inject capital, raising prices, and remove capital, lowering prices. It also covers the rules every player in the market must follow, and the mechanisms through which they must operate. Different markets also react to each other.

Change - The structure of the market changes in time. New markets appear, obsolete ones perish. Rules change - the moral becomes immoral and illegal. Pit traders retire and computer geeks take their place.

Space - aka volume. This is what traders try to judge, quantify and preempt. Volume is the amount of capital flowing from one location to another, changing prices as it moves. How much capital is moving, and why, and how prices will be affected, are the questions every trader needs to ask directly or indirectly. The ONLY way to profit from any financial market is to preempt the flow of capital.

Statistics - Statistics is usually the first thing that comes into traders minds when you mention math, IMO it should be the last. Statistics is simply the tool you use to measure the three areas described above. Without an understanding of them, a knowledge of how and what you are applying statistics to, I don't think statistics alone can make you profitable.
si hoc legere scis nimium eruditionis habes
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