Predicting what?
In the context of trading and machine learning, predicting the percent change is generally considered easier and more reliable than predicting the exact close price for several reasons:
Why Guessing the Up-and-Down Percentage is a Piece of Cake:
Steady as She Goes: Talking about percent changes is like catching the rhythm of a song—it doesn’t flip the beat on you. This steady rhythm means you can dance to it (or model it) without tripping over your own feet.
Cutting Through the Clutter: Percent change is like a filter on a photo—it keeps the good stuff and tosses the rest, making it a whole lot easier to see the real picture behind those pesky market wiggles.
Keeping it Relative: It’s all about that baseline groove. Percent changes give you the vibe of the market’s moves without getting all worked up over every penny—keeps your strategy chill and effective.
Playing it Smart with Risk: It’s like setting up guardrails on your road trip—by focusing on how much the road rises or falls, you know when to hit the gas or brake. In trading, that’s your stop-loss and profit-taking, all tuned to percent changes.
Rolling With the Punches: When your models are down with predicting the relative moves, they can bob and weave through different market moods and asset vibes like a pro.
The Twists and Turns of Pinning Down That Closing Price:
Moving Target: Trying to nail the closing price is like trying to grab a fish with your bare hands—it’s slippery because it never stays still for long.
Too Much Jazz: Close prices have got a lot of improv; they’re jamming with noise. So, if your model tries to learn that tune, it might end up playing the wrong notes—yeah, that’s overfitting.
Sweating the Small Stuff: Getting the closing bell price spot on? That’s like trying to hear a whisper in a hurricane. The market throws a lot of noise at you, and it takes some serious skill to pick out the whispers.
Unexpected Plot Twists: The market’s like a drama series—full of last-minute twists. News drops, end-of-day scrambles, you name it. All this jazz can throw your closing price predictions off-key.
The Slippage Sneak: Even if you’re the oracle that gets the closing price right, the market might not play nice. Orders don’t always fill at your perfect number—sometimes they slip through the cracks.
Given the nitty-gritty of these two approaches, us trading folk often prefer to jam with predicting percent changes—it just vibes better with our trade game. But hey, remember, playing the markets is like surfing—no matter how good you are, the ocean’s still in charge. Always wear your risk management lifejacket!
