Short answer
Binarizing a continuous score makes sense when most of the practical value comes from knowing whether the opportunity cleared a meaningful hurdle, not from measuring every small difference above and below that line.
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Topic cluster / Signal calibration and thresholdsWhen should you binarize a continuous trading score?
Binarize a continuous score when the useful edge mostly lives in the tails or when execution only supports sparse, high-conviction trades. Keep it continuous when intermediate values still carry ranking or sizing information that the portfolio can use.
What to remember
- The middle of the score distribution is mostly noise after costs.
- The strategy only wants sparse, high-conviction trades.
- A downstream regime gate or policy rule is naturally on or off.
When binarization helps
Some signals only become economically interesting in the extremes. In those cases, a binary trade rule can improve discipline, reduce churn, and align better with an execution stack that does not benefit from constant tiny resizes.
- The middle of the score distribution is mostly noise after costs.
- The strategy only wants sparse, high-conviction trades.
- A downstream regime gate or policy rule is naturally on or off.
When it throws away too much
If intermediate score levels still contain useful rank or size information, hard thresholding can waste signal quality. That is common in cross-sectional systems where relative ordering matters even when no single name is an obvious yes or no.
How to test the choice
Compare the continuous and binary versions on net outcomes, turnover, and robustness to small threshold changes. The cleaner curve is not automatically better if it only looks clean because the threshold hid a fragile score under one stylized rule.