Illustrative article · Sample editorial content and publication date, prepared for this website. Not a disclosure of proprietary research.
Changes, not levels
Prices trend; returns and ratios are closer to stable. Most useful features are built from changes rather than levels, so that a relationship found in one period has a chance of applying in another.
Scale for the regime
Volatility changes over time, so a one-percent move means different things in calm and turbulent markets. Scaling features by recent volatility, or ranking them across instruments, keeps them comparable.
Never use the future
A feature must be computed only from information available at the moment of decision. Centred moving averages, revised data and survivorship in the universe of instruments all leak future information in ways that are easy to miss, and all of them flatter a backtest.