What Is Binary signal?
In algorithmic trading, a binary signal is a type of trading signal that provides a simple, discrete output with only two possible states—typically represented as 0 or 1, yes or no, or buy or sell. Unlike continuous signals, which vary smoothly over time and offer a range of values, binary signals are straightforward and event-driven, indicating a clear action or condition based on predefined criteria.
For example, a binary signal might be generated when a specific threshold is crossed, such as:
1 (Buy) if the price of an asset rises above its 50-day moving average, and 0 (Sell or Hold) if it falls below.
1 (Enter Trade) if a momentum indicator exceeds a certain value, and 0 (Exit or Do Nothing) if it doesn’t.
These signals are often derived from technical indicators, market data, or rules-based logic in the trading algorithm. Their simplicity makes them especially useful for automated systems that need clear, unambiguous instructions to execute trades without hesitation.
In practice, binary signals are common in strategies like trend-following or breakout systems, where the algorithm needs to act decisively on specific market events. However, their limitation is that they don’t convey nuance or magnitude—only the presence or absence of a condition.
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