Hands-On Machine Learning for Algorithmic Trading

How to optimize for node purity

When growing a classification tree, we also use recursive binary splitting but, instead of evaluating the quality of a decision rule using the reduction of the mean-squared error, we can use the classification error rate, which is simply the fraction of the training samples in a given (leave) node that do not belong to the most common class.

However, the alternative measures, Gini Index or Cross-Entropy, are preferred because they are more sensitive to node purity than the classification error rate. Node purity refers to the extent of the preponderance of a single class in a node. A node that only contains samples with outcomes belonging to a single class is pure and imply successful classification for this ...