Optimization of trading systems and its role in trader’s activity
One of the factors of successful activity for a trader is the choice of a trading system. However, for it to always work effectively, it is necessary to analyze the results and regularly improve the approaches. Optimization of trading systems includes several components, including testing and performance evaluation. Without these stages, no approach will help to achieve significant success in the activity on the exchange.
The process of optimization does not have strict rules for its implementation. In this case, the analysis of various characteristics of indicators is carried out, certain parameters for the filters are selected. The purpose of the procedure is to make the trading system as effective as possible. In most cases optimization is carried out after testing and evaluation of a strategy which allows you to make a certain opinion about the effectiveness of its application. At the same time, it is important to take into account several factors, namely:
- the length of time for which the system was tested;
- the number of transactions made during this period;
- trading system profit;
- maximum deposit drawdown for the specified period of time (in percentage terms).It is necessary to take into account the fact that the trading system may need the optimization process not only at moments when there is the problem of sufficient effectiveness of estimations, but also at the change of market conditions in the process of trading. In simple words, when market trends change, it is necessary to debug the trading system so that it continues to function effectively.
The optimization can be done in several stages. The first stage presupposes the adjustment of signals related to opening of positions. If a trader uses various indicators, it is better to select the most effective parameters for them. In addition, further indicators can be added and, if necessary, previously used indicators can be replaced by other, more optimal ones. If the trading system does not imply the use of indicators, then you can take a closer look at various filters for entering the position.
At the second stage of optimization it will be useful to assess the levels of profits and losses, and change them. For example, by the number of trades the system conducts is more profitable than unprofitable. However, during testing, it became clear that the average profit indicator is smaller than the loss indicator. That is why it would be reasonable to adjust the ratios of these parameters.
After the above-mentioned manipulations have been performed, the third stage of the trading system optimization comes, which involves retesting with the changes already made. The ideal variant is the maximum values for the profit factor and the profit at minimum deposit drawdown ratios.
Another important point when choosing and using a trading system is the safety margin for one or another parameter.