Chapter 22 · Signal

How do you turn a feeling such as “the market is too hot” into a condition a computer can evaluate?

Phase 4 · Strategy thinkingTRD-STRAT-004 · v1.0

Skills to practice: Research EdgeData validation
Read first: Chapter 21 · Mechanism
3D simulation: None

Market scene

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Lin writes “sell after too large a rise.” Two people select different exits on the same chart. He adds a lookback and threshold, but uses today's close before the day finishes. Precision in wording does not repair incorrect timing.

Your decision

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Which timing and boundary treatment allows another person to recalculate the same rule?

Observe the result

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The experiment displays current features, signal availability, and the next opening reference. Before the lookback is ready, it should report not ready. A higher threshold may turn directional signals flat. Computable, available then, and executable are independent conditions.

The mechanism

Rules specify fields, lookback, formulas, thresholds, direction, and missing-data behavior. Momentum here measures the current close against the lookback close. Strictly exceeding the threshold triggers direction; equality stays flat. Breakouts compare prior-window highs/lows, excluding the current bar from boundaries.

The engine waits for one bar to complete and executes the preceding signal at the next open. Funding visible at the current close may inform the next decision, not the already-past current open. Publication-time changes require rebuilding availability, not simply aligning tables.

What it is called

SignalSignal

A rule mapping then-available inputs to target direction or no trade.

FeatureFeature

A descriptive quantity derived from raw fields, with explicit window and availability.

ThresholdThreshold

A trigger boundary requiring explicit strict inequality or equality inclusion.

Look-ahead biasLook-ahead Bias

Decisions use information not yet known, even if the final dataset looks complete.

Real markets

Information after closingMarket data

Chapter 13 separates quotes from fills. Signal timestamps are not execution times.

Published open interestDerivatives

Use Chapter 17's open interest at actual availability, not a complete hindsight series treated as immediate observations.

Hypotheses before featuresResearch records

Chapter 20's mechanism determines what features measure. Trying many indicators before adding stories creates selection bias.

Hands-on

LabTurn a vague opinion into deterministic rules25 minutesPage experiment and local text

Keep defaults; move the observation point and distinguish not-ready from ready.
Change lookback and threshold separately; record direction changes.
Produce a signal card: raw fields, publication times, formula, window, threshold, missing behavior, earliest allowed fill.

360 synthetic daily bars with seed 42, not historical performance. Initial $10,000; each entry uses 50% of equity, no rebalancing while held, exit at final close. Equity exhaustion is checked at opens/closes and negative equity retained.

Research rule

Lookback bars：10Change threshold (%)：1

Keep only signals with current-bar funding between −0.02% and +0.02% (exit otherwise)

One-way fee (bps)：4Slippage including spread (bps)：2Additional impact (bps)：0

Settle funding at every close (disabling does not change observed signals)

Net return: 9.38%
Maximum drawdown at closes: 15.63%
Closed trades: 44
Net win rate: 52.27%
Final equity (USD): 10,937.56
Shutdown / negative equity (USD): Not shut down / 0

Same-quantity ledger (USD)	Amount
Gross PnL	1,320.78
Fees / slippage / impact	183.33 / 91.66 / 0
Net funding paid (negative means net received)	108.23
Net PnL = gross − all costs	937.56

Gross PnL is reconstructed using the same actual quantities and reference prices; it is not a separate zero-fee strategy. Costs affect later equity and quantities. A fixed impact parameter does not estimate book capacity. Funding may be received net.

View close-signal indexes：20

Index20: close106.19, features2.67；Window ready, conditionPassed, target1. Earliest execution: index21 open106.24. Available at1814400000 ms (synthetic origin).

Report notes and evidence gaps

Report preview:backtest-report.md

# Backtest Report · Synthetic teaching run

- Data: generateSyntheticMarket, seed 42; 360 synthetic daily bars, t0=0 ms; OHLCV/OI/Funding available at each close. Not historical market data.
- Rule: momentum, lookback 10, threshold 1%; long/short; funding filter Disabled
- Timing: current-close signal → next-open execution. No trades during warm-up; entry budget is 50% of current equity, no rebalancing while held; forced exit at the final close.
- Costs: one-way fee 4 bps, slippage including spread 2 bps, additional impact 0 bps, close funding Settled
- Same-quantity gross PnL 1,320.78; fees 183.33; slippage 91.66; impact 0; net funding paid 108.23; net PnL 937.56 USD.
- Net return 9.38%; maximum drawdown at closes 15.63%; 44 closed trades; negative equity 0 USD.
- IS/OOS: this is full-sample exploration, not a completed blind test. Record the freeze and OOS results in the sample-split experiment; a viewed test period is no longer unseen.
- Parameter stability: parameter grids, different seeds, and cost stress remain to be tested. One curve cannot establish stability.
- Regimes (retrospective generator labels; independent capital resets per segment, not attribution of a continuous curve):
  - Rising segment [0,120): net return 11.34%; drawdown 1.75%; total cost 120.35 USD (fees 33.85, slippage 16.93, impact 0, net funding paid 69.57).
  - Choppy segment [120,220): net return -7.05%; drawdown 9.73%; total cost 123.05 USD (fees 76.24, slippage 38.12, impact 0, net funding paid 8.69).
  - Falling segment [220,320): net return 3.76%; drawdown 3.19%; total cost 73.03 USD (fees 47.82, slippage 23.91, impact 0, net funding paid 1.3).
  - Stress segment [320,360): net return 2.05%; drawdown 11.69%; total cost 64.96 USD (fees 26.16, slippage 13.08, impact 0, net funding paid 25.72).
- Promotion gates (provide evidence and pass/fail/unknown for each; this synthetic experiment does not qualify for live trading):
  - Economic logic: unknown; Can you explain who pays you and why they are willing?
  - Statistical significance: unknown; Can the result be distinguished from luck? How many attempts found it?
  - Out-of-sample: unknown; Does it hold on completely unseen data?
  - Robustness: unknown; Does it hold across parameters, markets, and periods?
  - Costs: unknown; What remains after fees, slippage, funding, and impact?
  - Risk: unknown; What is the worst-case loss and correlation with the existing portfolio?
  - Execution: unknown; Can actual execution approach backtest assumptions? What is capacity?
  - Market regime: unknown; Which regimes produce profits and which cause failure?
- Researcher notes (source timestamps, splits, stability, execution limits): (To complete)
- Limitations: entry budget at or below 1× does not mean no leverage during holding. Bankruptcy is checked only at opens/closes; no intrabar liquidation. Funding settles per bar; impact is a parameter, not a fitted book model. No live quotes or order connections.

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Course versionV1-docs; sourcep3:report:backtest-report.md；Chapter 22 / TRD-STRAT-004

Records parameters and results at the click only; does not mean the experiment passed.

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# Backtest Report · Synthetic teaching run

- Data: generateSyntheticMarket, seed 42; 360 synthetic daily bars, t0=0 ms; OHLCV/OI/Funding available at each close. Not historical market data.
- Rule: momentum, lookback 10, threshold 1%; long/short; funding filter Disabled
- Timing: current-close signal → next-open execution. No trades during warm-up; entry budget is 50% of current equity, no rebalancing while held; forced exit at the final close.
- Costs: one-way fee 4 bps, slippage including spread 2 bps, additional impact 0 bps, close funding Settled
- Same-quantity gross PnL 1,320.78; fees 183.33; slippage 91.66; impact 0; net funding paid 108.23; net PnL 937.56 USD.
- Net return 9.38%; maximum drawdown at closes 15.63%; 44 closed trades; negative equity 0 USD.
- IS/OOS: this is full-sample exploration, not a completed blind test. Record the freeze and OOS results in the sample-split experiment; a viewed test period is no longer unseen.
- Parameter stability: parameter grids, different seeds, and cost stress remain to be tested. One curve cannot establish stability.
- Regimes (retrospective generator labels; independent capital resets per segment, not attribution of a continuous curve):
  - Rising segment [0,120): net return 11.34%; drawdown 1.75%; total cost 120.35 USD (fees 33.85, slippage 16.93, impact 0, net funding paid 69.57).
  - Choppy segment [120,220): net return -7.05%; drawdown 9.73%; total cost 123.05 USD (fees 76.24, slippage 38.12, impact 0, net funding paid 8.69).
  - Falling segment [220,320): net return 3.76%; drawdown 3.19%; total cost 73.03 USD (fees 47.82, slippage 23.91, impact 0, net funding paid 1.3).
  - Stress segment [320,360): net return 2.05%; drawdown 11.69%; total cost 64.96 USD (fees 26.16, slippage 13.08, impact 0, net funding paid 25.72).
- Promotion gates (provide evidence and pass/fail/unknown for each; this synthetic experiment does not qualify for live trading):
  - Economic logic: unknown; Can you explain who pays you and why they are willing?
  - Statistical significance: unknown; Can the result be distinguished from luck? How many attempts found it?
  - Out-of-sample: unknown; Does it hold on completely unseen data?
  - Robustness: unknown; Does it hold across parameters, markets, and periods?
  - Costs: unknown; What remains after fees, slippage, funding, and impact?
  - Risk: unknown; What is the worst-case loss and correlation with the existing portfolio?
  - Execution: unknown; Can actual execution approach backtest assumptions? What is capacity?
  - Market regime: unknown; Which regimes produce profits and which cause failure?
- Researcher notes (source timestamps, splits, stability, execution limits): (To complete)
- Limitations: entry budget at or below 1× does not mean no leverage during holding. Bankruptcy is checked only at opens/closes; no intrabar liquidation. Funding settles per bar; impact is a parameter, not a fitted book model. No live quotes or order connections.

Change one variable

IfMove only the observation before warm-up

Insufficient history means not ready; future data cannot fill the gap.

IfRaise only the threshold

Triggers may decrease without guaranteeing better returns or quality.

IfDelay only a field's publication

Earliest trading shifts later; the original fill price may be unavailable.

Three depths

One knowledge nodeTRD-STRAT-004: one question at each of three depths

FoundationHow can a computer evaluate a feeling such as the market is too hot?Chapter 22
AdvancedHow do you perform Feature Engineering and combine multiple signals?Advanced C · Systematic and quantitative trading
InstitutionalHow are production signals monitored, and who decides shutdown when drift appears?Institutional

Express opinions as individually recalculable rules. Missing values and equality boundaries are part of them.

Questions to take away

What are the probability and payoff odds? Is expectancy positive?

List inputs truly visible at decision time.

What is the worst-case loss?

Separate predictive power from attractive hindsight results on complete data.

After the outcome, how do I distinguish luck from decisions?

Apply predefined stops for missing, late, and drifting data.

Chapter self-test

One idea to take away

A signal translates a hypothesis into explicit, repeatable rules using only data available at the time.

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How can a computer evaluate a feeling such as the market is too hot?

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Chapter 22 · Signal

Is a computable signal tradable?

What happens at threshold equality?

Can future data fill insufficient warm-up?

When does this bar's closing signal execute?

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