Back testing and optimization are a critical part of developing a trading strategy. Unlike discretionary trading strategies, systematic strategies can be back tested to prove their performance. While historical results do not guarantee future results, a system that performs well when back tested is far more likely to be successful in the future.
Any systematic approach can and should be optimized to increase the ROI and reduce drawdowns. Even neural network forex trading strategies can be optimized further by incorporating other indicators and filters.
Why back test trading strategies?
One of the biggest advantages of using a systematic approach to trading is that emotion and cognitive biases are removed from the decision-making process.
However, removing emotion and bias from the process will not help if the system is not profitable. Back testing will give you an idea of how a system might perform in the future. Back testing also allows you to identify weak points, market conditions that may be unfavorable, and aspects that could be improved.
It unlikely that the initial parameters that a system is designed with will be the parameters that produce the best results. By optimizing a system, you can find the combination of parameters, timeframe and other characteristics that produce the most profitable results and the system that will have the best reward to risk characteristics.
There is more to a trading system than its potential profitability. Superior trading systems are robust; their performance does not deteriorate over time, and they perform well under different market conditions. Alternatively, a good system will have clear signals to tell you when you should suspend trading due to unfavorable market conditions.
Where to back test trading strategies?
Most trading platforms and technical analysis applications can be used to back test a trading strategy. They will produce a list of profitability and risk metrics for a given instrument and time frame.
Optimizing parameters of algorithm trading strategies can also be done using trading platforms, though there may be some limitations.
These platforms can optimize the setting that already form part of the algorithm – but cannot suggest additional filters that can be added.
Alternatively, we can help you conduct a more comprehensive back test and optimize your system to maximize ROI and minimize potential drawdowns.
How Nordman Algorithms trading strategy optimization works?
Nordman Algorithms can optimize your trading using our proprietary machine learning algorithms. We can do this for all trading systems created in MetaTrader, NinjaTrader or cTrader. Our optimization is based on more than the just parameters used in the strategy and identifies other variables that may be used to improve performance.
The process starts with your automated strategy. If it is not yet automated, we start by automating the strategy for your choice of trading platform.
We then back test the strategy to gather data related to the trade signals it generates. This includes oscillator values, the distance between the price and a range of indicators, and any indicator patterns present when signals are generated. We also gather data related to the day of week and time of day for each signal. The back test may also be run for a range of instruments and time frames.
The data is processed using our machine learning algorithm to identify any ways the ROI can be increased, and the drawdowns decreased. The forex trading machine learning algorithm can identify numerous ways in which a strategy can be optimized.
By identifying the levels of a range of indicators we can create filters to reduce the number of losing trades. Trading systems often perform well on certain days of the week or at certain times of day. Signals generated during poorly performing days of the week can also be filtered out to improve performance.
Once this is done you will know when the system performs best, and which parameter settings produce the best results. This can save a lot of time and money in the long run.
Analyze your trading strategy!
If you have a trading strategy that you want to analyze, optimize to increase profitability – feel free to contact us! We may even be able to turn a losing strategy into a profitable Forex trading strategy.
Our trading data analysis team will respond to you within 24 hours clarifying all the details needed.
Our team of experienced MetaTrader developers and NinjaTrader programmers guarantees the quality of your trading strategy automation in accordance with your individual requirements. Send us the description of your project and we will provide you a free consultation regarding your trading system.
11412, Majaka str. 26, HarjuCounty, Tallinn, Estonia
Trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Hypothetical or Simulated performance results have certain limitations, unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.
Please note, that testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.