Probability Distributions for Trading the Markets

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A probability distribution is a function that describes the likelihood of different outcomes in a random event. It tells us the probability that a certain outcome will occur within a certain range of values.

There are many different types of probability distributions, including discrete distributions, such as the binomial distribution and the geometric distribution, and continuous distributions, such as the normal distribution and the uniform distribution.

• The binomial distribution is a probability distribution that describes the likelihood of a certain number of successful outcomes in a series of independent events. It is commonly used to model situations where there are only two possible outcomes, such as heads or tails in a coin toss or pass or fail in a quality control process.
• The geometric distribution is a probability distribution that describes the number of trials that are needed to achieve a certain number of successes in a series of independent events. It is commonly used to model situations where there is a fixed probability of success on each trial, and the trials are independent of each other.
• The normal distribution is a bell-shaped curve that is commonly used to model a wide variety of continuous variables, such as height, weight, and IQ. It is defined by its mean and…