Mathematics skills for discretionary trading.

Discussion in 'Trading' started by gotmessner, Mar 13, 2005.

  1. Hey,

    I'd like to know your thoughts in regards to the maths skills in trading.

    For example, there are a number of books by companies such as 'Schaums' which are on subjects such as Calculus, statistics etc.

    I was wondering, which maths-subjects are most useful for trading?

  2. naz9403


    The greatest math minds in the world so far can not quantify the market, so it is limited. But as i see it, people have made millions with simple math i'd say college level algebra should do it.
    If you want to sound fancy and go the LTCM (long term capital) route and use complicated mathy models the nobel prize winnners and MIT Harvard econ phds put together thats fine too just read the book "When Genius Failed"

    Math is always good to have under your belt just dont apply it as concrete i guess the moral of the story is.

    Statistics is also a plus
  3. Yaa, basically I want to brush up on relevant maths skills. I'm thinking about: going over algebra, learning statisitics and financial econometrics....

    I by no mean expect to quantify the market with these shiny new skills....
  4. Sounds like you know what you need to work on. Stats, linear algebra and some econometrics/time-series analysis. Thats more than you'll need for discretionary trading.

    Having some programming skills in (choose any one from: C++/Java/C# even Python) AND Matlab, would be a plus.

    You'll only really need PDEs, Martingale Methods and Stochastic Calculus if you wish to study Quantitative Finance, i.e. you wish to price some exotics, get into risk management or become a Quant trader, etc, etc...
  5. Definitely a basic understanding of game theory.

    When you're dealing with a single chart in a single time frame, technical analysis is enough. But if you're also watching the technical patterns in the time frames above your trading frame, understanding the strategic interdependencies can be the decisive factor for determining the probabilities of a collective behaviour pattern taking place.

    Some key words to google for: "dominant strategy", "band wagon effect", "brinkmanship", "prisoner's dilemma", "evolutionary game theory", "lotka / volterra theorem", "tit for tat".
  6. Henri Poincarré used to say to his students: "If you want to become a good mathematician, it suffices to read the masters".

    Following this precept, you left out "Fibonacci", "fairies", "star gazing", "divining" and "vigorous rabbit foot rubbing".

    In fact the prime skill of a true mathematician is to see where to apply what.

  7. FredBloggs

    FredBloggs Guest

    all you need is to understand the basic expectancy calculation, and understand the basics of probability theory.

    as someone wisely pointed out - if all the nobel prize winners cant make a dime, then whats the friggin point?

    complex maths stuff like taleb and his philosophy babble ( is interesting coffee table stuff imo, but beyond the typical street fighting traders who make consistent money day in day out.

    remember markets can do anything at any time. algebra wont predict that!
  8. Most software programs do the math for you. But if you must, algebra is more than enough.

    Best course of study would be forensics.... the power of observation is priceless in trading. Can't do forensics? Try chemistry. (BTW, after college I turned down a job offer as a forensic chemist.... didn't pay enough.)

    In a former life, I was a professional bowler. There were always a few guys who bowled almost every day but never got very good at it. Why? They didn't practice proper technique nor strategy. So, how does this apply to trading? Most players make things more complicated than necessary and therefore "practice the wrong things".

    Bottom line... be observant and simplify.
  9. gnome,

    You must have picked up the forensics idea from Jonathan Swift's reflections on "the Market".

    Meantime, secure on Garraway cliffs, A savage race, by shipwrecks fed, Lie waiting for the foundered skiffs, and strip the bodies of the dead."

  10. A very excellent advice indeed. :p
    #10     Mar 13, 2005