Optimization

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.

BREAKING DOWN '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
  1. Moving Average Ribbon

    A technique used in technical analysis to identify changing trends. ...
  2. Simple Moving Average - SMA

    A simple, or arithmetic, moving average that is calculated by ...
  3. Death Cross

    A crossover resulting from a security's long-term moving average ...
  4. Periodic Interest Rate Cap

    A part of an interest rate cap structure on loans and mortgages. ...
  5. Value Change

    An adjustment made to a stock's price to reflect the number of ...
  6. Price Change

    The difference in the cost of an asset or security from one period ...
Related Articles
  1. Trading Systems & Software

    Trading Systems: What Is A Trading System?

    A trading system is simply a group of specific rules, or parameters, that determine entry and exit points for a given equity. These points, known as signals, are often marked on a chart in real ...
  2. Trading Systems & Software

    Trading Systems: Troubleshooting And Optimization

    Even after successfully designing and constructing a working trading system, a trader may find that his or her system is imperfect. There may be some problems, such as an event that keeps generating ...
  3. Technical Indicators

    How To Use A Moving Average To Buy Stocks

    The Moving Average indicator is one of the most useful tools to trade and analyze financial markets.
  4. Forex

    Moving Averages

    The use of moving averages in technical analysis
  5. Active Trading

    Moving Averages: Strategies

    By Casey Murphy, Senior Analyst ChartAdvisor.com Different investors use moving averages for different reasons. Some use them as their primary analytical tool, while others simply use them as ...
  6. Trading Strategies

    Technical Analysis: Moving Averages

    By Cory Janssen, Chad Langager and Casey MurphyMost chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. ...
  7. Active Trading

    Moving Averages: Factors To Consider

    By Casey Murphy, Senior Analyst ChartAdvisor.com Data Used in Calculation Most moving averages take the closing prices of a given asset and factor them into the calculation. We thought it would ...
  8. Active Trading

    The 7 Pitfalls Of Moving Averages

    While moving averages can be a valuable tool, they are not without risk. Discover the pitalls and how to avoid them.
  9. Forex

    Moving Average Strategies

    Make more educated trading decisions by using moving averages to identify major turning points.
  10. Trading Systems & Software

    Trading Systems: Designing Your System - Part 1

    The preceding section of this tutorial looked at the elements that make up a trading system and discussed the advantages and disadvantages of using such a system in a live trading environment. ...
RELATED FAQS
  1. What are the most common periods used in creating Moving Average (MA) lines?

    Learn the most commonly selected periods used by traders and market analysts in creating moving averages to overlay as technical ... Read Answer >>
  2. What are the main advantages of using Moving Averages (MA)?

    See why moving averages have proven to be advantageous for traders and analysts and useful when applied to price charts and ... Read Answer >>
  3. What do the bracketed numbers following a technical indicator mean?

    In technical analysis, it is common to see a series of numbers following a given technical indicator, usually in brackets. ... Read Answer >>
  4. Are exponential moving averages more effective than simple or weighted moving averages?

    Learn about different types of moving averages, as well as moving average crossovers, and understand how they are used in ... Read Answer >>
  5. How is a simple moving average calculated?

    Learn about the simple moving average, how the indicators are used, and how to calculate a stock's simple moving average ... Read Answer >>
  6. I keep hearing about the 50-day, 100-day and 200-day moving averages. What do they ...

    Whether you are using the 50-day, 100-day or 200-day moving average, the method of calculation and the manner in which the ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center