Search Investopedia

Optimization

Filed Under » ,
Dictionary Says

Definition of 'Optimization'

In the context of technical analysis, it is the process of adjusting one's trading system in an attempt to make it more effective. These adjustments include changing the number of periods used in moving averages, changing the number of indicators used, or simply taking away what doesn't work.
Investopedia Says

Investopedia explains 'Optimization'

For example, if an investor has a simple trading system that is just composed of a crossover of closing price and a moving average, by changing the periods of the moving average, the trader will get different profits, risk, capital drawdowns, etc. Thus, optimization helps you to choose the optimal parameters to trade.

Related Definitions

  •

    Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.
    Read More »

  • Crossover

    The point on a stock chart when a security and an indicator intersect. Crossovers are used by technical analysts to aid in forecasting the future movements in the price of a stock. In ...
    Read More »

  • Backtesting

    The process of testing a trading strategy on prior time periods. Instead of applying a strategy for the time period forward, which could take years, a trader can do a simulation of his ...
    Read More »

    • Technical Analysis

      A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's ...
      Read More »

    • Bar

      A graphical representation of a stock's movement that usually contains the open, high, low and closing prices for a set period of time.
      Read More »

    • Test

      In technical analysis, it is when a stock price approaches a support or resistance level set by the market. If the stock stays within the support and resistance levels, the test is ...
      Read More »

    • Universe Of Securities

      A set of securities that shares a common feature such as the same market capitalization, industry or index. Universe of securities can also refer to securities within a defined price ...
      Read More »

    • Moving Average - MA

      An indicator frequently used in technical analysis showing the average value of a security's price over a set period. Moving averages are generally used to measure momentum and define ...
      Read More »

    • Modern Portfolio Theory - MPT

      A theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of ...
      Read More »

Articles Of Interest

Sponsored links
Hot Definitions
Partner Links
Suggested Definitions