Graybox design: Signals vs Indicators

Graybox Trading

Jun 06

Traditional systems are designed to trigger a buy or sell signal. Discrete buy and sell signals are very useful in that they give clear unambiguous direction. However, a simple buy or sell signal is authoritative and  doesn’t convey any additional information that the discretionary trader can make use of. Traditional indicators can be difficult to read and have unresolved meaning: it is up the to the trader to figure out how an indicator performs on a given market.

I suggest alternative approaches below that may have superior value for the graybox trader:

  1. Convert system outputs (or proprietary indicators) used to trigger trading signals into continuous measure, aka indicator, with confidence thresholds such that there is a quality to the signals. Unlike traditional indicators, at least they will have been backtested and optimized.
  2. Combine multiple indicators into unique proprietary indicators conveying unique predictive value.
  3. Add text descriptions indicating quality measures to trading signals such as a confidence measure or rank.
  4. Offer multiple projected entries or exits (or add aggressiveness tuning) to existing systems which would allow the trader to bias the trades based on confidence and read



About the Author

Curtis is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact him at