Let's say you want to test the hypothesis that given a signal reaches some threshold, some asset will have some return over the next period.
Here we have two unknowns.
- One, the value of your threshold - that triggers the trade
- Two, the time period to measure your return after your signal occurs.
What approach do people usually take to solve the two unknowns? I've learned that data mining is bad (so I'm hesitant to test out random time periods and threshold values until I find a good combination), so what's a reasonable approach?