14. Summary of Lesson 1

PRDTM2-787 AI Trading C4 L1 Vid13 Summary Of Lesson 1

Building a Momentum-Based Trading Strategy

Key Concepts Covered

  • Normal Distribution:

    • Foundations for trading strategy.
    • Learn about probability density and cumulative distribution functions.
    • Use the norm class in scipy.stats to calculate expectations.

  • Functions and Calculations:

    • PDF (Probability Density Function) calculates probability for a value.
    • CDF (Cumulative Distribution Function) calculates the probability up to a certain value.
    • expect function for computing expectations.

  • Brownian Motion:

    • A stochastic process used in modeling.
    • Increments follow a normal distribution with the mean of 0.
    • Variance is determined by time passed.

Statistical Tests for Momentum

  • Shapiro-Wilk's Test:

    • Determines if data is normally distributed.

  • Student's T-Test:

    • Checks if the data set has a specific mean.

These tools assess market momentum, identifying real trends versus random variations. Practice calculation and interpretation to enhance understanding and application in trading.