How I am trying to stop being so easily manipulated by my own trading statistics


What we are communicating are simple statistical issues, such as underlying risk, standard errors, and variability. But they are extremely difficult to communicate clearly, even to people with some training in statistics. So we spend a lot of time with patient groups, changing wording after wording, such that we end up with something that is understandable without being technical or misleading.


There are. We know, for example, that “relative risks” can be used to look impressive. Twice a small number is still a small number. We know that talking in whole numbers—so many people out of 100—is clearer than talking in percentages or decimals. We know if done right, visual representation can often do a better job of explaining numbers, especially to those with low numeracy. “As a statistician, the perception of numbers is new to me. I thought people would know that 3 out of 100 = 3% = 0.03.”


We’ve used this knowledge, worked with psychologists around the world, to build guidelines for how people can best communicate risk. But there are still things that we haven’t got a good answer to. For instance, we know that people think 30 out of 1,000 is bigger than 3 out of 100. We know that we make numbers look bigger by manipulating the denominator.


The bottom line is that humans are very bad at understanding probability. Everyone finds it difficult, even I do. We just have to get better at it. We need to learn to spot when we are being manipulated. Changing axes on a chart is one way, but there are many other subtle ways to do it.


Read the full article here…

As someone that is not that natural with numbers, I find this article very interesting.  I am constantly looking to improve my use and understanding of trading statistics, but I have also noticed that I suffer at times at not completely accepting what my own statistics are telling me.

To aid me in my understanding, I have over time been adding more graphical representation to trading statistics in my own journal.

The Edgewonk trading journal does an excellent job of doing this.

But what I am also doing, is changing the way the trading statistics are displayed. Typically my percentages were displayed in decimals i.e 0.72 is 72%. I have changed my journal so all these trading statistics are displayed in full percentages so that it is easy for me to digest these figures.

As I have mentioned before, that one of the areas I working is self belief in myself and my system. For example, if I take 3 losers in a row, the default state in the past has been to doubt my own ability or that my system is losing its edge.

To help combat that, in the trade entry part of my journal, I have a system health mini dashboard, which displays my win rate and exp for all my trades and also for the last 30 trades and looks at various factors as time between trades, errors, trade quality, average win and average loss over the last few trades.  This is to give me a heads up when I about to go on tilt and when I am not on tilt, it is there as added mental re enforcement that when I have a string of trades not working out, the the bigger picture is still healthy and these losing streaks are within my standard distribution of my system.

I have added recently an indicator to the Health dashboard which displays my minimum required win percentage to be profitable, taking in account my historical average win compared to my historical average loss (BM%), and then does the same on a rolling 30 trade average(BM.30%). This is then plotted on a simple bar chart against my current historical win rate and 30 trade rolling win rate.






These minimum win rates are not a target, but a mental crutch.  When the inevitable losing streak comes along, I find it natural for me to start doubting my process and system. But a check of my System Health Dashboard will remind me that this is within the normal distribution. Which allows me to re focus on context and process rather than worrying about the mechanics of my system.


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