Phase 1: Fundamentals of Statistics and Financial Markets

Objective: Develop a strong foundation in both basic statistics and the workings of financial markets.

1. Introduction to Financial Markets

• Key Concepts: Market Types (Equities, Futures, Options), Trading Terminology, Market
Microstructure, Order Types, Slippage, Liquidity
• Why Important: Understanding market structure and trading mechanics is vital for building strategies.
• Application to Trading: Know how futures and options are priced, margin requirements, and how they
differ from other asset classes.
• Resources: “A Complete Guide to the Futures Markets” by Jack D. Schwager, Coursera’s “Financial
Markets” by Yale University

2. Descriptive Statistics

• Key Concepts: Mean, Median, Variance, Skewness, Kurtosis, Histograms

• Why Important: Summarizing and understanding price data distribution is essential before any
analysis.
• Application to Trading: Assess the basic characteristics of asset price returns, volatility, and risks.
• Python Application: Use pandas and numpy for calculating these metrics on historical data.
• Resources: Khan Academy, pandas documentation, "Python for Data Analysis" by Wes McKinney

3. Probability Theory

• Key Concepts: Probability Rules, Conditional Probability, Bayes’ Theorem, Law of Large Numbers
• Why Important: Estimating probabilities of price moves, breakouts, or option expirations.
• Application to Trading: Apply probability to options strategies like the likelihood of price ending
in/out of the money.
• Python Application: Simulate market scenarios using probability functions in Python.
• Resources: Coursera's "Introduction to Probability," "Think Stats" by Allen B. Downey

4. Probability Distributions

• Key Concepts: Normal Distribution, Lognormal, Binomial, Poisson, Fat Tails

• Why Important: Asset prices and returns often follow specific distributions. Understanding these helps
in pricing options and estimating future price movement.
• Application to Trading: Use distributions to model returns and volatility, evaluate probability of option
expiration scenarios.
• Python Application: scipy.stats for fitting data to distributions, matplotlib for visualization.
• Resources: “Financial Calculus” by Martin Baxter and Andrew Rennie, Datacamp’s "Probability
Distributions in Python"

Phase 2: Inferential Statistics and Hypothesis Testing

Objective: Learn how to draw conclusions from financial data and test strategies statistically.

5. Sampling and Estimation

 • Key Concepts: Sampling Methods, Central Limit Theorem, Confidence Intervals, Point Estimates
• Why Important: Financial data often requires sampling (e.g., daily returns). Estimation helps infer
future behavior.
• Application to Trading: Use confidence intervals for expected returns, estimate the accuracy of
predictions.
• Python Application: Use pandas to sample historical price data and calculate confidence intervals.
• Resources: “Introduction to Statistical Learning” by Gareth James, Datacamp’s "Confidence Intervals
in Python"

6. Hypothesis Testing

• Key Concepts: Null Hypothesis, p-Values, t-Tests, z-Tests, Chi-Square Test, Type I and II Errors
• Why Important: Helps validate or reject trading hypotheses (e.g., whether a strategy has statistically
significant returns).
• Application to Trading: Backtest a strategy and use hypothesis testing to determine if it's better than a
random walk.
• Python Application: statsmodels and scipy.stats for running tests, Backtrader for backtesting.
• Resources: "Naked Statistics" by Charles Wheelan, Datacamp’s "Hypothesis Testing in Python"

Phase 3: Time Series Analysis and Financial Forecasting

Objective: Understand time series analysis to model and forecast financial data.

7. Time Series Basics

• Key Concepts: Autocorrelation, Stationarity, White Noise, Lagging

• Why Important: Financial data is time-dependent. Understanding its patterns helps predict future
movements.
• Application to Trading: Identify seasonality, trends, or cycles in asset prices, crucial for futures
trading.
• Python Application: Use statsmodels for autocorrelation, rolling windows, and trend analysis.
• Resources: “Time Series Analysis” by James D. Hamilton, Datacamp’s "Time Series with Python"

8. ARIMA and GARCH Models

• Key Concepts: ARIMA (AutoRegressive Integrated Moving Average), GARCH (Generalized

Autoregressive Conditional Heteroskedasticity)
• Why Important: ARIMA helps model price movements, while GARCH is crucial for volatility
forecasting.
• Application to Trading: Use ARIMA for trend prediction in futures, GARCH for volatility prediction
in options pricing.
• Python Application: statsmodels or pmdarima for ARIMA, arch package for GARCH modeling.
• Resources: “Time Series Analysis and Its Applications” by Robert Shumway, Datacamp’s "ARIMA
and GARCH models in Python"

Phase 4: Regression and Machine Learning

Objective: Use statistical models and machine learning techniques for prediction and optimization.

9. Linear and Multiple Regression

• Key Concepts: Ordinary Least Squares (OLS), Multicollinearity, R-squared, P-value

• Why Important: Helps identify relationships between market variables (e.g., interest rates and asset
prices).
• Application to Trading: Build regression models to predict price or returns based on independent
variables like volatility, volume.
• Python Application: statsmodels or scikit-learn for regression modeling.
• Resources: "An Introduction to Statistical Learning" by Gareth James

10. Machine Learning for Trading

• Key Concepts: Decision Trees, Random Forests, Support Vector Machines (SVM), K-Nearest
Neighbors (KNN)
• Why Important: Machine learning techniques can help detect patterns and optimize strategies in large
datasets.
• Application to Trading: Use algorithms to predict market movements, create strategies for options and
futures based on technical indicators or patterns.
• Python Application: scikit-learn for algorithm implementation, Backtrader for backtesting the models.
• Resources: “Hands-On Machine Learning with Scikit-Learn, Keras, and TensorFlow” by Aurélien
Géron, Coursera’s "Machine Learning for Trading"

Phase 5: Advanced Risk Management and Strategy Optimization

Objective: Learn techniques for managing risk and optimizing strategies using advanced statistical and
quantitative methods.

11. Portfolio and Risk Management

• Key Concepts: Sharpe Ratio, Sortino Ratio, Value at Risk (VaR), Drawdown
• Why Important: Proper risk management is key to long-term profitability. These metrics help assess
strategy risk/reward.
• Application to Trading: Optimize your futures or options portfolio to balance risk and maximize
returns.
• Python Application: quantlib and riskfolio-lib libraries for portfolio optimization, Backtrader for
strategy testing.
• Resources: “Quantitative Risk Management” by Alexander J. McNeil, Riskfolio-lib documentation

12. Monte Carlo Simulations

• Key Concepts: Stochastic Modeling, Monte Carlo Paths, Sensitivity Analysis

• Why Important: Monte Carlo simulations help stress-test strategies under different market conditions.
• Application to Trading: Use Monte Carlo simulations to test the robustness of a strategy under varying
price paths.
• Python Application: numpy and matplotlib for simulations, Backtrader for running simulations on
strategies.
 • Resources: “Stochastic Calculus for Finance” by Steven Shreve, Datacamp’s "Monte Carlo Simulations
in Python"

13. Bayesian Statistics

• Key Concepts: Bayesian Inference, Bayesian Updating, Markov Chain Monte Carlo (MCMC)
• Why Important: Bayesian methods allow for continuous updating of beliefs with new data, ideal for
adaptive trading strategies.
• Application to Trading: Use Bayesian inference to update probabilities of price movements or
volatility based on incoming market data.
• Python Application: pymc3 or pyStan for Bayesian modeling.
• Resources: “Bayesian Methods for Hackers” by Cameron Davidson-Pilon

Phase 6: Practical Implementation and Algorithmic Strategy Development

Objective: Integrate all learned statistical and quantitative techniques into real-world algorithmic strategies.

14. Algorithmic Strategy Backtesting

• Key Concepts: Backtest Reliability, Walk-Forward Testing, Overfitting, Strategy Optimization

• Why Important: Testing strategies on historical data is crucial to ensure their robustness before live
trading.
• Application to Trading: Use Backtrader for backtesting futures and options strategies on historical
data. Implement walk-forward testing to avoid overfitting.
• Python Application: Backtrader for backtesting, QuantConnect for strategy development and testing.
• Resources: “Advances in Financial Machine Learning” by Marcos Lopez de Prado

15. APIs for Live Trading

• Key Concepts: Real-time Data Feeds, Execution Algorithms, Broker APIs (e.g., Alpaca, Interactive
Brokers)
• Why Important: API integration allows for real-time data and live trading execution.
• Application to Trading: Build trading bots using broker APIs, retrieve live data, and execute trades
based on your algorithm.
• Python Application: Use Alpaca, Interactive Brokers, or Upstox API for live data feeds and order
execution.
• Resources: API documentation of the respective brokers, Alpaca Trading’s "Python API for Algo
Trading"

Final Project: Create and Test a Full Trading Algorithm

• Build a Futures or Options Trading Algorithm using Backtrader

• Backtest the Strategy using historical data
• Perform Risk Management Analysis and optimize the portfolio
• Deploy Algorithm on a Live Market using broker API for execution