Difference Between Mean and Median in Trading Context

When analyzing trading data, such as points gained on the NASDAQ (NQ) during sessions, both the mean and the median provide valuable insights but serve different purposes:

Mean (Average)

The mean is calculated by summing all values and dividing by the number of data points. In the example:

- Values: 132, 197, 198, 210, 350

- Sum = 1087

- Mean = 1087 / 5 = 217.4

The mean reflects the overall average movement but can be skewed by outliers such as the 350-point move, which might result from high-impact news events like Non-Farm Payrolls (NFP), Federal Open Market Committee (FOMC) announcements, or Consumer Price Index (CPI) releases.

Median

The median represents the middle value in a sorted data set. For the same example:

- Sorted Values: 132, 197, 198 210, 350

- Median = 198

The median provides a more balanced view, unaffected by outliers, making it particularly useful when extreme events occur, such as unexpected news-driven spikes.

Key Takeaway for Traders:

- Use the mean for a general sense of market behavior, but recognize that it may overstate the typical range during volatile periods.

- Rely on the median for a clearer picture of the usual market movement, as it minimizes the influence of one-off events.

In this example, the 350-point outlier (potentially caused by news) inflates the mean, while the median remains closer to the normal range of movement.