How does rebalancing differ for binary and continuous signals?

Question

Accepted Answer

Binary signals often produce state changes like in or out, while continuous signals naturally suggest proportional resizing. The key difference is not that one must rebalance on a fixed schedule and the other must not. It is that the rebalance rule should match signal decay, trading cost, and the information lost or kept by the signal format. Start with the signal shape: A binary signal often says stay in the trade until the state flips. A continuous signal often says resize as the score changes. That difference naturally pushes the strategy toward different rebalance patterns, even when both trade the same instrument universe. Why continuous signals tend to rebalance more: A continuous score retains more information about changing edge strength, so it naturally invites more frequent resizing. That can be useful when the signal decays smoothly, but expensive when the score wiggles more than the real opportunity does. Why binary signals often use wider bands: Binary triggers often pair well with threshold bands, hold rules, cooldown periods, or state persistence because those devices stop the strategy from thrashing around small score changes. What the real design question is: The right question is not 'should binary signals rebalance differently?' in the abstract. It is 'how fast does the underlying edge decay, how noisy is the signal, and what turnover can the strategy afford?' That is the level where rebalance policy becomes research instead of habit.