Triple-Barrier Labeling

Fixed return thresholds ignore volatility - a 2% move is noise in crypto but a signal in treasuries. Triple-barrier labels adapt to the asset's current regime.

The Problem

Naive binary labels (return > 0) are noisy and ignore position management. A trade that gains 5% then gives back 8% is labeled "winning" if you only check the endpoint. Triple-barrier labeling mirrors real trading: you exit when you hit a profit target, a stop loss, or time runs out.

The Pattern

WRONG

import numpy as np

# Fixed threshold ignores volatility regime
labels = np.where(fwd_returns > 0.02, 1, np.where(fwd_returns < -0.01, -1, 0))