Markets: A Rigorous Course

M14 · Problem 14 ★★ Check

Graduation arithmetic

Your backtest of a setup gives expectancy 0.25R and standard deviation 1.2R per trade. (a) How many trades are needed for t=2t = 2 in expectation, and for 80% power? (b) After 60 live trades the mean is 0.10R with standard deviation 1.25R. Is this consistent with the backtest at the ±2 SE level? Is it significant on its own? (c) You paper-traded 8 candidate setups, none of which has an edge, and kept the best. With a per-setup false-positive rate of 2.4%, what is the chance at least one "graduated"?

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Commas, ₹, % and 1e-3 notation are accepted.

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