Effect Size

Effect size measures the magnitude of the difference or relationship between variables, independent of the sample size. While statistical significance tells us if an effect exists, effect size tells us how large and meaningful that effect is for trading profitability.

In cryptocurrency, a strategy might be statistically significant due to a large sample size, but if the effect size is negligible, it will not cover transaction costs or slippage. Analysts use metrics like Cohen's d to determine if the observed market edge is substantial enough to justify the risk.

It is a critical metric for separating theoretical findings from practical, actionable trading opportunities. Focusing on effect size prevents traders from over-optimizing for small, irrelevant market anomalies.