Hands-On Machine Learning for Algorithmic Trading

How Bayesian machine learning works

Classical statistics is also called frequentist because it interprets probability as the relative frequency of an event over the long run, that is, after observing a large number of trials. In the context of probabilities, an event is a combination of one or more elementary outcomes of an experiment, such as any of six equal results in rolls of two dice or an asset price dropping by 10% or more on a given day.

Bayesian statistics, in contrast, views probability as a measure of the confidence or belief in the occurrence of an event. The Bayesian perspective of probability leaves more room for subjective views and, consequently, differences in opinions than the frequentist interpretation. This difference ...