Why Testing 20 Trading Ideas Raises False Discovery Risk
Summary
Hollow Point Trading shares a short video explaining why testing twenty ideas can increase the risk of false discoveries. Using a hypothetical example with twenty independent tests, each with a 5% false-positive rate and all null hypotheses true, it illustrates how noise can appear convincing—an important caution for evaluating trading strategies.
https://youtu.be/8wv6Jg9ISHg
Twenty tests create more chances for a false discovery #Shorts
Testing twenty ideas gives noise twenty chances to look convincing. Consider a hypothetical example where every null hypothesis is true. Each test has a five percent false positive rate, and all twenty tests are independent. These are declared assumptions, not facts about trading strategies. The chance of no false positives is zero point nine fi...
