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Topic cluster / Signal and portfolio designYes. A binary signal often sits downstream of continuous indicators like z-scores, spreads, forecasts, or probabilities. The key is deciding where the threshold should live and whether the conversion destroys useful information.
What to remember
Many binary signals are built exactly this way. You start with a continuous variable like spread, momentum, probability, or expected value, then convert it into a decision rule such as trade only if the score is above a threshold.
That can be a very good design, but it changes the problem from feature estimation to threshold design. You are no longer just asking whether the indicator is informative. You are asking where the trade should switch on and off.
Binary triggers can simplify execution, reduce churn, and make a strategy easier to explain. They are especially attractive when the costs of acting on weak signals are high.
Thresholding throws away information. A score of 0.79 and 0.21 may get treated the same if both fall below the trigger, even though one may be much more interesting than the other.
Think of the continuous indicator as the raw evidence and the binary signal as the policy layer. The indicator says how attractive something looks. The binary rule says when attractiveness is high enough to justify paying spread, slippage, and attention.
If the binary version only works after delicate threshold tuning, that is usually a warning sign. The edge may live in the smooth score while the trigger is just overfit policy glue.