I think you are right on the money and most traders do use techniques analogous to the ones you describe when designing models: http://www.decal.org/file/2945

I think you are right on the money and most traders do use techniques analogous to the ones you describe when designing models: http://www.decal.org/file/2945 http://www.decal.org/file/2945 "Alpha is often nothing more than taking commonly available data and mathematically encoding it in a signal correctly. Correct often means something as simple as using an rate of change instead of a difference, normalizing a value, smoothing a chaotic signal with an EMA, using a heteroscedastic weighted linear regression instead of a simple regression, or handling all numerical errors or edge cases." It's not always easy to get this completely correct in every situation and traders face a reward function that doesn't necessarily reward correctness so much as avoiding Type II errors.