V.6:4 (157-159): SIDEBAR: What is Chi Square?

V.6:4 (157-159): SIDEBAR: What is Chi Square?
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What is Chi Square?

If, in the past, records show that the market exhibited more rises than declines at a certain time, could it have been by chance? Yes. If a medication produced cures more often than average, could it have been luck? Yes. If so, how meaningful is the record?

To be helpful, statisticians set up "confidence levels." If the result could have occurred by chance once in 20 repetitions of the record, you have 99% confidence that the result isn't just luck. This level has been called "probably significant."

If the expectation is once in 1,000 repetitions, you can have 99.9% confidence. This level has been called "significant."

If your statistics are a simple two-way (e.g., yes-no; rises vs. declines; heads-tails; right-wrong), you can easily determine the confidence level with a simple statistical test. It may be simple, but it has a formidable name: Chi Square Test with Yates' Correction. Here's the formula:

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