mt-data-mcp/docs/forecast/UNCERTAINTY.md

Uncertainty and confidence intervals

A point forecast without a range invites overconfidence. This page covers model intervals and conformal intervals so you can size risk and set levels with eyes open.

Dense terms: Confidence interval · Conformal intervals · CI alpha · Horizon

Related: Forecasting · Barriers · Volatility · Glossary

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Types of uncertainty

Model confidence intervals

Intervals from the model’s assumptions (for example normal errors).

Limitation: Markets often have fat tails and regime shifts, so these bands can be too narrow.

Conformal intervals

Bands calibrated from historical forecast errors — empirical residual-quantile coverage without strong distributional assumptions.

Advantage: More realistic bounds based on actual performance.

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Model Confidence Intervals

Request intervals with --ci-alpha:

mtdata-cli forecast_generate EURUSD --timeframe H1 --horizon 12 \
  --method analog --ci-alpha 0.1 --json

Parameters:

• --ci-alpha 0.1 → 90% confidence interval
• --ci-alpha 0.05 → 95% confidence interval

Output includes:

{
  "uncertainty": {
    "status": "available",
    "mode": "interval",
    "alpha": 0.1,
    "intervals": [
      {"time": "2026-01-01T18:00Z", "forecast": 1.1755, "low": 1.1740, "high": 1.1770}
    ]
  }
}

Interpretation:

• Each uncertainty.intervals[] row is a forecast step. low and high are the model interval bounds for that row (price or return, matching the requested quantity).
• If model assumptions hold, the true value will fall between low and high about 90% (or 95%) of the time.

Caution: Financial markets have fat tails. Model CIs often underestimate extreme moves.

forecast_generate does not promote a bullish or bearish point estimate to direction unless the horizon interval excludes the last observed price. If a method cannot supply the requested interval, the response reports signal_status: not_actionable, direction_actionable: false, and preserves the model-only label as point_estimate_direction for research diagnostics.

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Conformal Intervals (forecast_conformal_intervals)

Residual-quantile calibration builds intervals from rolling backtest residuals, making no distributional assumptions.

How It Works

1. Run a rolling-origin backtest on historical data
2. Collect actual forecast errors at each horizon step
3. Use error quantiles to set interval width for new forecasts

Usage

mtdata-cli forecast_conformal_intervals EURUSD --timeframe H1 \
  --method theta --horizon 12 --steps 50 --spacing 20 --json

Parameters:

Parameter	Description	Default
--method	Forecasting method	theta
--horizon	Forecast horizon	12
--steps	Number of calibration anchors (default 50 for stabler quantiles)	50
--spacing	Bars between calibration anchors	20
--ci-alpha	Miscoverage rate (0.05 = 95% interval; 0.1 = 90%)	0.05

When --steps > 1, --spacing must be >= --horizon so calibration windows do not overlap; otherwise the request is rejected.

Output

{
  "forecast": [
    {"time": "2026-01-01T18:00Z", "value": 1.1755, "lower": 1.1740, "upper": 1.1770}
  ],
  "conformal": {
    "interval_method": "rolling_residual_quantiles",
    "coverage_target": 0.95,
    "empirical_coverage": 0.92
  }
}

Interpretation:

• Each forecast[] row has its point value and empirically calibrated lower / upper price bounds.
• With the default alpha, the empirical target coverage is 95%. This is a calibration target, not a finite-sample guarantee.

Use --detail full when you need the raw lower_price / upper_price arrays or calibration diagnostics such as conformal.per_step_q and per-step coverage.

When to Use

• When you don't trust model-based intervals
• For trading decisions where reliability matters
• When historical data shows fat tails or regime changes

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Triple-Barrier Labeling (labels_triple_barrier)

A different approach to uncertainty: instead of predicting where price goes, label what happened historically.

Concept

For each historical bar, ask: "Within the next N bars, did price hit the take-profit level, stop-loss level, or neither?"

Labels:

• +1 (Win): TP hit first
• -1 (Loss): SL hit first
• 0 (Neutral): Neither hit within horizon

In high_low mode, same_bar_policy resolves a bar that touches both barriers. The default is conservatively sl_first; tp_first and neutral are explicit alternatives.

When denoising is enabled, the resolved close series anchors each barrier. high_low still uses raw intrabar highs and lows so an observed tradable touch is not smoothed away; labeling_spec.hit_price_source reports this as raw_high_low. Choose label_on=close to use only the resolved close series for both anchors and hits.

Label preprocessing is causal by default. zero_phase filters use future bars and are rejected unless --allow-noncausal-denoise is supplied. That override is for exploratory offline analysis only: the response sets lookahead_bias=true, suitable_for_backtest=false, and records the effective method, causality, parameters, and entry column under preprocessing.denoise.

Usage

mtdata-cli labels_triple_barrier EURUSD --timeframe H1 --horizon 12 \
  --barriers '{"unit":"pct","take_profit":0.5,"stop_loss":0.3}' --json

Parameters:

Parameter	Description
--horizon	Maximum bars to wait
--barriers	JSON object with unit, take_profit, and stop_loss
--allow-noncausal-denoise	Explicitly permit look-ahead-contaminated zero-phase labels for offline exploration

A conventional FX pip is not the same unit as an MT5 tick. Convert pips using the symbol's quote precision before supplying tick distances (for many five-digit FX quotes, one pip is 10 ticks).

Output

{
  "entries": ["2025-12-18 17:00", "2025-12-18 18:00", ...],
  "labels": [1, -1, 0, 0, 1, ...],
  "holding_bars": [5, 3, 12, 12, 8, ...],
  "summary": {
    "counts": {"pos": 45, "neg": 32, "neut": 123}
  }
}

Interpretation:

• Label distribution shows historical win/loss rates for these barrier levels
• Use this to evaluate signal quality or train ML models

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Practical Applications

Conservative Position Sizing

Use conformal intervals instead of model CIs:

# Get conformal intervals
mtdata-cli forecast_conformal_intervals EURUSD --horizon 12 --ci-alpha 0.1

# Use the first forecast row's lower value as a stop-loss floor
# Size position so max loss (if that lower bound is hit) is within risk budget

Validating Signal Quality

Use triple-barrier labels to evaluate entry signals:

# Label historical entry points
mtdata-cli labels_triple_barrier EURUSD --horizon 12 --barriers '{"unit":"pct","take_profit":0.5,"stop_loss":0.3}'

# Check win rate: counts.pos / (counts.pos + counts.neg)
# If win rate < 50%, signal needs improvement

Comparing Forecast Methods

Backtest with conformal intervals to compare reliability:

# Method A
mtdata-cli forecast_conformal_intervals EURUSD --method theta --horizon 12 --steps 50

# Method B
mtdata-cli forecast_conformal_intervals EURUSD --method sf_autoarima --horizon 12 --steps 50

# Compare interval widths—narrower = more precise (if coverage is similar)

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Quick Reference

Task	Command
Method CI (90%)	mtdata-cli forecast_generate EURUSD --method analog --ci-alpha 0.1
Conformal intervals	mtdata-cli forecast_conformal_intervals EURUSD --method theta --horizon 12
Triple-barrier labels	mtdata-cli labels_triple_barrier EURUSD --horizon 12 --barriers '{"unit":"pct","take_profit":0.5,"stop_loss":0.3}'

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See Also

• FORECAST.md — Price forecasting
• BARRIER_FUNCTIONS.md — TP/SL probability analysis
• GLOSSARY.md — Term definitions