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Hi traders , members and friends .
Optimizations types and simulators
First of all ,I will answer a good comment about “ default indicators parameters “ and if it profitable or not ? the first stage in optimization is – testing default indicators parameters , for example if use MACD crossover trading strategy , we first test default parameters ( 12,26,9) for many forex pairs and we will say test results . if default parameters do well or it make losses . if default parameters do well for ( pair X – time frame X ) fine , keep it , stuck with it . in trading strategy we just only play with winner card ( trading strategy ) . that’s all .
I cann’t mention any product name or simulators , but I will give u general headlines about them to compare and choose the best and profitable simulator software’s .
The famous optimization simulator that found in metatrader ( in metatrader it call – strategy tester - )
By strategy tester we can test and optimize indicators and expert advisors , for any(pair - time frame )
We mean by “ testing strategy “ that using default indicator or expert advisor parameters for our historical data . and we mean by “ optimize strategy “ that looking for parameters that achieve best results through historical data .
Sadly , most of traders may spent full time in trading , and they never take a bit to enhance trading performance or planning for next trading ,they may just thinking about only make a huge profit without any knowledge .
Metatrader use optimization method call “exhaustive search “ which mean that it test all parameters .
In the following picture “ optimization results “ for AUDUSD daily time frame , and we use moving average expert advisor that found in metatrader . we just optimize ( decrease factor and moving period )
( Plz notify that the parameters in the picture for clarify not for use in real trading )And then we choose and use the best parameter for us , although optimization show successful results , but I classify metatrader simulator as BAD simulator for the following reasons :
1 – indicators and expert advisors in metatrader depend in programming language mql4 or 5 , u ll not able to make your own strategy easily . either learn mql4,5 or go to programmer to code your trading strategy . it is not practical solution .
2 – “exhaustive search optimization “ it take a longer time more than other optimization method to calculate every possible combination . for example ( MA and close price crossover (1 :100 ) and take profit ( 1 pip : 100 ) now there is 100*100 = 10000 different combination , and if I add stop loss ( 1 pip : 100 ) it became 100*100*100 = 1 million of combinations which optimized in a lot of hours .
3 – It just provide us with profit and total trades , profit factor and drawdown , it is not provide us with more data about trades such as
Percent of profitable trades – sharp ratio – equity curve correlation ….. etc
4 – trading platform plus strategy tester at same software ( metatrader ) its very bad , it mean high process and CPU usage ( PC may hang up or shut down that caused by optimization loading ) . especially when connected to the internet .
5 – we cann’t make real evaluation to the optimized strategies , we just evaluate strategy based on old data , may not do well on new data and past performance of a trading system is no guarantee of future performance ( over-fitting ) to overcome that problem scientist is divide historical data into 2 periods :
optimization period : it call also “ in sample “
unseen data period : it call also “ out of sample “
real optimized trading system evaluation through out of sample , because the trading system not optimize at this period or never seen it before , so that out of sample determine either trading system is successful or not .
6 – there are simulators more advanced and better , faster than metatrader strategy tester .
happy weekend …. To be continue
