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In my last post I talked about some of the problems with statistical
inference. I probably should have mentioned statistical significance
versus statistically right.
The central limit theorm and the number 30 trades was mentioned in
response to someone asking how many trades it takes to be
statistically sound.
I don't know what the definition of statistically sound is but the
answer that MG gave refers to statistically significant.
Unfortunately, something being statistically significant does not
address the question of dependibility.
Statistically significant is a nummerical threshold that relates to
sample size versus the size of the universe of data, or the population.
At the threshold of statistical significance, I would be very
reluctant to place my money on any defined outcomes.
In regard to statistics, the definition of how much is needed to
produce a good enough answer is based on your defintion of how good is
good enough. That varies a lot from person to person and situation to
situation.
If the question is about how many pulls is it going to take to start
my lawn mower, that's completely different issue than how much data do
I have to test to make sure I have a really high probability of making
money on the next 100 trades.
If there's a 2% chance you won't survive a surgical procedure that's a
huge potential negative outcome. If there's only a 2% chance you'll
lose your money, where's the casino!
That's wrong headed thinking. Casino's make an enormous amount of
money from people that think a 2% or less chance of losing is good
odds. And a lot of people die from procedures that 98% survive.
The central limit theorm doesn't understand nor care about the
difference between how many pulls it takes to start my lawn mower or
the percentage of people who die from a surgery.
If the central limit theorm says that a sample size of 30 is
statistically significant and my doctor concludes that based on having
done the surgery 30 times, I only have a 2% chance of dying, I might
feel somewhat reluctant to embrace the central limit theorm in regards
to trusting it with my life. I may want to tell my doctor to call me
when there's been 30,000 of these surgeries and give me my odds.
I suppose it all depends on how certain you need to be about the
probability of an outcome before you're willing to bet on it.
Like I said, the mathematics of probability can be a cruel teacher.
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