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Beyond Raw Factors — Enhancing Alpha Predictability in Crypto Markets
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Building on the foundation that technical indicators work better as continuous alpha factors than binary trading signals, let’s explore some enhancement strategies for Bitcoin return prediction. We test cross-sectional ranking, volatility regime adjustments, Kalman filtering, and factor combinations on a library of technical indicators.
We already established that technical indicators like RSI and MACD, when used as continuous alpha factors rather than binary trading signals, demonstrate significant predictive power for Bitcoin returns. However, raw indicator values suffer from regime changes, non-stationarity, and noise that can be addressed through quantitative enhancement techniques.
This study systematically evaluates five enhancement strategies commonly used in…
