What Is a Frequency Distribution?

What Is a Frequency Distribution?

Let me explain what a frequency distribution is—it's a statistical representation that quantifies the number of instances of distinct values or intervals within a dataset. You'll see it as a table or graph showing how often values occur within specific intervals. I use it in statistics to analyze quantitative data, like census results or financial data in stock trading. Frequency distributions often link to visualizing patterns, such as the normal distribution.

Key Takeaways

Here's what you need to know: a frequency distribution displays how often things happen in your data. You can represent it graphically or in a table. It's particularly useful for normal distributions, where observations of probabilities are divided among standard deviations. If you're a trader, you can use frequency distributions to note price action and identify trends.

Understanding Frequency Distributions

As a statistical tool, a frequency distribution gives you a visual representation of how observations are distributed in a test. The frequency is how often a value occurs in an interval, and the distribution shows the pattern of those frequencies for the variable. I often depict them in graphs or tables. You, as an analyst, can use frequency distributions to visualize or illustrate data from a sample.

These distributions help you identify trends and patterns in the datasets you're analyzing. Researchers and statisticians rely on them to study populations. They're also valuable for analysts and investors comparing investment possibilities.

Applications include determining sales data and employee sentiment in business, asset performance and risk management in investing, demographical data in statistics, and consumer behavior in marketing.

Take the height of children as an example—you split it into categories or ranges. When measuring 50 children, some are tall, some short, but you'll likely see a higher frequency in the middle range. Remember, the intervals must not overlap and must cover all possible observations.

Important Note on Interval Size

The interval size in a frequency distribution depends on the data and your goals as the analyst. Ensure intervals are mutually exclusive and exhaustive.

Visual Representation of a Frequency Distribution

Both histograms and bar charts use columns for visual display, with the y-axis showing frequency count and the x-axis the variable measured. In the children’s height example, y-axis is the number of children, x-axis is height, and columns show the count in each interval.

A histogram typically shows a normal distribution, with most occurrences in the middle columns. Frequency distributions are key for charting normal distributions, dividing observation probabilities among standard deviations.

You can present them as a frequency table, histogram, or bar chart. For instance, a table might show intervals like 4’ to 4’5” with frequency 2, 4’5” to 5’ with frequency 5, and 5’ to 5’2” with frequency 3 for children's heights in a school.

Frequency Distribution in Trading

Frequency distributions aren't common in investments, but traders following Richard D. Wyckoff, an early 20th-century pioneer, use an approach involving them. Investment houses still teach this method, which requires practice.

The frequency chart here is a point-and-figure chart, created for floor traders to note price action and identify trends. The y-axis is the variable measured, x-axis is frequency count. Changes in price action are denoted by Xs and Os. You interpret three Xs as an uptrend, meaning demand has overcome supply. Three Os indicate supply has overcome demand.

What Are the Types of Frequency Distribution?

The types include grouped frequency distribution, ungrouped frequency distribution, cumulative frequency distribution, relative frequency distribution, and relative cumulative frequency distribution.

What Is the Importance of a Frequency Distribution?

A frequency distribution organizes large amounts of data and highlights trends and patterns. It takes data from a population based on characteristics and makes it comprehensible for you to make assumptions about that population.

How Can I Construct a Frequency Distribution?

To construct one, note the specific classes by intervals in one column, then sum the numbers in each category based on occurrences. Note the frequency in the second column.

The Bottom Line

A frequency distribution displays the number of observations within a particular interval. While not always common in investing, some traders use it as a point-and-figure chart to identify trends through price action observation.