Regularizing a Linear Model
If I could leave readers of this book with only one thought, it would be this: the strength of your indicators is vastly more important than the strength of the predictive model that uses them to signal trades. Some of the best, most stable and profitable trading systems I’ve seen over the years use a simple linear or nearly linear model with high-quality indicators as inputs. I’ve also seen far too many people feed marginal indicators to some modern, highly sophisticated nonlinear model in the vain hope that the model will miraculously overcome ...
