Trading system optimization vs over-optimization

Trading system optimization is one of the most important parts of the systematic trading workflow. At the same time, it is one of the most misunderstood. Unfortunately, quite frequently it is condemned as a flawed technique. However, its notoriety is mostly due to the wrong understanding of the process and widespread misuse.

The aim of this article is to clear the misunderstandings and show you how to optimize trading systems properly.

If you haven’t covered the basics of systematic trading, or you feel that you need a review, take a look at the previously covered topics in the following articles:

Topics overview:

  • What is trading system optimization?
    • Learn what does trading system optimization mean;
    • What is an objective function;
    • How to optimize a trading system and why this is one of the most important parts of the systematic trading workflow?
  • What is over-optimization?
    • Learn what is over-optimization, also known as overfitting or curve-fitting, and how to avoid it.
  • What are the symptoms of over-optimization?
    • Learn how to understand that you are looking at an over-optimized trading system results.
  • How to distinguish between a solid and over-fit trading system?
    • Learn how to tell if you are looking at a solid or an over-fit trading system.

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