Optimization

What Does Optimization Mean?
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 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 Terms

Backtesting
Bar
Crossover
Drawdown
Modern Portfolio Theory - MPT
Moving Average
Technical Analysis
Test
Universe of Securities
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Related Links

Weighted Moving Averages: The Basics - We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
Backtesting: Interpreting the Past - We offer some tips on this process that can help refine your current trading strategies.
Trading Systems Coding - Automate your trades by translating your strategy into a language your computer can implement in this hands-free approach to investing.
Lessons From A Trader's Diary - Discover what this trader learned from his mistakes and how to uncover your own.
Trading Systems: Troubleshooting And Optimizaiton - Does your trading system need adjustments? We''ll show you how to tweak your way to trading bliss.

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