On a fundamental statistical edge principle
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.
Cite
@article{arxiv.2404.14252,
title = {On a fundamental statistical edge principle},
author = {Tommaso Gastaldi},
journal= {arXiv preprint arXiv:2404.14252},
year = {2024}
}
Comments
For companion simulation material, real-life case studies, and source code, see https://www.datatime.eu/public/arXiv_paper/