Probability and Basic Statistics

What this unit covers

Learn expected value from a worked example of a strategy that wins less than half the time yet is still profitable, and separate win rate from profitability.

By the end you will be able to

• Calculate expected value by weighing each outcome's probability against its size.
• Distinguish frequency from magnitude when judging a repeated decision.
• Explain why a strategy winning under half the time can still be profitable.

How it starts: Losing More Often Than You Win

1. A trading result sheet shows 100 closed trades over the year.
2. Only 40 of them made money, the other 60 lost.
3. Would you still call this a profitable year?

Words you will meet

Expected value

The weighted average outcome of a repeated decision, found by multiplying each outcome's probability by its size and adding the results.

Probability

How likely a particular outcome is to happen, often shown as a percentage.

In this module: Quantitative Thinking & Backtesting

1. Probability and Basic Statistics (this unit)
2. Data Quality and Bias
3. Assumptions, Costs, and Overfitting
4. Walk-Forward Thinking and Performance Interpretation