Hands-On Machine Learning for Algorithmic Trading

Linear classification

The linear regression model discussed so far assumes a quantitative response variable. In this section, we will focus on approaches to modeling qualitative output variables for inference and prediction, a process that is known as classification and that occurs even more frequently than regression in practice.

Predicting a qualitative response for a data point is called classifying that observation because it involves assigning the observation to a category, or class. In practice, classification methods often predict probabilities for each of the categories of a qualitative variable and then use this probability to decide on the proper classification.

We could approach the classification problem ignoring the fact that ...