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On a fundamental statistical edge principle

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  • Tommaso Gastaldi

Abstract

This paper establishes that conditioning the probability of execution of new orders on the self-generated historical trading information (HTI) of a trading strategy is a necessary condition for a statistical trading edge. It is shown, in particular, that, given any trading strategy S that does not use its own HTI, it is always possible to construct a new strategy S* that yields a systematically increasing improvement over S in terms of profit and loss (PnL) by using the self-generated HTI. This holds true under rather general conditions that are frequently met in practice, and it is proven through a decision mechanism specifically designed to formally prove this idea. Simulations and real-world trading evidence are included for validation and illustration, respectively.

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  • Tommaso Gastaldi, 2024. "On a fundamental statistical edge principle," Papers 2404.14252, arXiv.org.
    • Handle: RePEc:arx:papers:2404.14252
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    3. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
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