026: Systematic trader Robert Carver discusses trading rules, what makes a good trading rule and the advantages of using continuous rather than binary rules. He also shares insights into over-fitting and the challenges of walk-forward testing that can mak
Better System Trader
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Trading Rules - Binary or Continuous?
In your book, you suggest that trading rules should be continuous rather than binary. Can you explain what you mean by that? Okay. So if we can move back to trading rules. Yeah, trading rules are often binary in nature. For example, price above a moving average. That's essentially a yes or no question. Now, a continuous rule would work something like this. When the five day moves just above the 20 day, you would buy a fraction of a position of a unit. And at some point, the crossover would reverse and you'd start selling. The reason why big hedge fund or someone trading any kind of large amount of money would need to do this.
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