Forex Strategy Optimization – How To Do It?

Forex strategy optimization is a must before using it in real trading. How exactly to do the optimization?

A standard practice is back testing on the historical market data. As each strategy has a number of parameters, we need to repeat tests for different parameter values and find out the values that make the most profit.

Parameters are independent, so the number of available combinations can be substantial. Consequently, solving such a problem of finding a multi-dimensional maximum can take a considerable time. Especially if tests are run on a long data interval.

To complete tests in reasonable time, it makes sence to test first those parameters combinations, which are believed to have the most influence on the risk level. Using market patterns, e.g. trending or rangebound market, is another way to reduce the computing time.

Another problem is – how much historical data should we use? What is the minimum data interval to test on to be confident in our strategy? There is no correct answer here.

In our example, our automated trading strategy was optimized on one month of data for Asian trading sessions. Asian trading is the least volatile and easier to trade. Still, for the next month the same parameters resulted in losses.

Back testing can’t guarantee success – Forex market is unpredictable. Does it make sense to test at all?

Our approach is to monitor the market in real time, and adapt the strategy to current market conditions on-the-fly.

Forex Strategy Optimization In Real Time

Strategy optimization with back testing can be called static, because the outcome of the tests are some fixed set of parameter values that is used unchanged in future.

Our approach we can call “dynamic” optimization. Contrary to static approach, here the tests are run in real-time on the latest market data.  and so the test data always changes. We are working on an algorithm for adjusting the strategy parameters on-the-fly.

Dynamic optimization is an important part of our strategy development toolkit, which already includes a real-time pivot point detecting algorithm. Which generates trade signals at market tops and bottoms. As you understand, optimizing the detection process in real time will have an enormous profit potential.

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