Optimization

AAA

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 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
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  2. Modern Portfolio Theory - MPT

    A theory on how risk-averse investors can construct portfolios ...
  3. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  4. Drawdown

    The peak-to-trough decline during a specific record period of ...
  5. Test

    In technical analysis, it is when a stock price approaches a ...
  6. Universe Of Securities

    A set of securities that shares a common feature such as the ...
Related Articles
  1. Backtesting: Interpreting The Past
    Trading Systems & Software

    Backtesting: Interpreting The Past

  2. Weighted Moving Averages: The Basics
    Active Trading Fundamentals

    Weighted Moving Averages: The Basics

  3. Backtesting And Forward Testing: The ...
    Trading Systems & Software

    Backtesting And Forward Testing: The ...

  4. Trading Systems Coding
    Trading Systems & Software

    Trading Systems Coding

comments powered by Disqus
Hot Definitions
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  2. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  4. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  5. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  6. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
Trading Center