Monday, February 6, 2012

Importance of Optimizing the Parameters

In trading, some rules are to be followed so as to make the right decisions and get the high profit. It involves removal of emotional aspects out of the trading to make it more beneficial. In the spur of the moment, people take decision under the influence of emotion and that creates lot of problems. Thus, they have to bear the loss. To combat these problems, trading strategies have been made and play a very vital role. It enables you to take right decisions and get successful in trading. These strategies are a specific set of rules that are consistent and never change.

Types of optimization

Basically, there are two types of optimization. One is slow complete algorithm and another is fast genetic based algorithm. In slow complete algorithm, run are performed for all the combination of values of input variables that are selected for optimization. It is one of the best and precise methods of optimization. In fast genetic based algorithm method, best values of input parameters are to be searched. It is very fast and trial of all the combination's can be performed in few hours. In this, most adapted parameters are constantly selected. The algorithm can be represented in various forms such as the two sets that are elected by random sample from the possible combination's of parameters, one of the set with the best result, descendants that are sorted by best results or the operations and crossing repeats until the result is improved.

Nowadays, several devices are used for the parameter optimization. Although, it can be done manually but it's better to use any optimization method. If the data is in small amount, you can use data brute optimization method. It is very beneficial as it makes all the combinations of the available parameter. It also assesses its usability and efficiency. If data is present in high amount, backtesting is the most preferable method. As in case of high amount, you need to enter multiple trades at a time. Backtesting gives a clear idea that whether the strategy has worked in the past and yielded the preferred results or not.

Optimization is only used after the careful testing of strategy. Always make sure that it is profitable. A strategy can be optimized for an array of markets as well as periods. The strategy organization wizard is very helpful in providing the step by step guidance for the whole process of optimization. No doubt, parameter optimization has greatly worked in the past and is very helpful in giving desired results.

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