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I've run into a problem with a binary signal and can't quite get my
mind around how to solve it.
I have a trend-following indicator where a binary signal "1"
indicates "Up" and "0" indicates "Down." I sell-short on minor
rallies when the trend-following indicator is at "0."
When the binary indicator starts out (at the beginning of the data
being tested) it's at "0", but there may or may not be an actual
downtrend according to my trend definition. I may get a false signal
to sell-short even though the trend isn't actually down, just because
the indicator arbitrarily starts out at "0."
I've read Roy's article about latches (and I've used his "Init"
trick) but haven't been able to puzzle out how to address this
problem.
Is there a way out of this dilemma without waiting for a cycle
of "buy" and "sell" to initialise, which will exclude trades at the
beginning? Any way of taking all the trades according to the actual
conditions, so I don't have to kick out any first "false" trades by
hand during testing? Or is it simply better to exclude those first
trades so that I only get "true" signals?
TIA for any guidance on this.
Luck to all,
Sebastian
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