[beagle3]

.. because you buy at the price, and sell at the price (spread and fees ignored for now).

Which means, regardless of your philosophy, you are predicting a price change - a long signal is a prediction for positive price change; a short signal is a prediction for a negative price change. If that wasn’t true, your system would not be able to profit.

Predicting price change and predicting price are semantically equivalent, although a specific algorithm might be better at one than the other.

[qeternity]

Given less than 100% certainty, traders don't want to predict price, they want to predict future distribution of price over some time period.

Source: hedge fund trader

[beagle3]

True. That’s still considered a prediction of price among my trading colleagues.

[jarym]

Predicting price means you’re predicting one variable with no idea of hot likely you are to be wrong and how wrong you’re likely to be and says nothing of where your expectations are for price to go after.

It is semantically different to say: if price goes to Y then you have odds that it will then go to Target 1 and then slightly lower odds it goes to Target 2.

[beagle3]

Do you long now, or short now, or neither? If you go long, you’ve predicted price goes higher. Regardless of what you think about the entire path. Mathematically nothing else makes sense.

[beagle3]

Replying to myself instead of all three replies so far:

People, prediction is a general term. Many predictors come with accuracy estimates (and outside of finance, often prediction bounds). But even if it was only one number - if you have good prediction of the expected price change, that could be sufficient to trade as it encompasses, by definition, the sun of probability of different outcomes times their magnitude.

Either E[price] or E[log price] is a single predicted value you can successfully trade with as long as you are far from your margins, and depending of course on your utility functions.

But as I mentioned, in most fields, when you talk of a “predictor”, that’s not a single number but also accuracy estimates or even a full fledged probability distribution of future events.

[jarym]

Right, but that's not what this article (and several others I've seen) are doing - they are measuring the performance of some AI by putting on some unnecessary (and quite likely impossible) constraints on what it is supposed to be outputting.

All I'm pointing out is that measuring any stock trading algo by treating it as a regression problem for the exact next time step is a naive approach - that's not the same thing as what human traders are doing.

Anyway, if you are trading then I wish you lots of success.

[noelsusman]

You want to predict price, but a price prediction is useless without an accurate estimate of the error of your prediction.