The optimizer module is the first step to add the word “Smart” in any trading system.
1. Function
The function of the optimizer module is to provide robustness to our trading systems, usually when we optimize a system, we are used to choosing parameters that are only suitable to reward/reward metrics instead of analyzing robustness.
A great balance, a high profit factor, or an unrealistic mathematical expectancy.
Are any of those parameters useful when determining if a Trading System works?
With Alphadvisor we can access more detailed metrics, such as SQN and K-Ratio, which will give us an interesting edge when it comes to understanding how your Systems works, and if it haves an edge, using a clustering model.
2. How to properly optimize Trading Systems
The first step will be to have an optimization report, this allows us to export all the parameters of our system together with their respective Ratios.
To do this, we will need a System created with Alphadvisor, and select an objective function.
At the time of using this module we need to have a custom objective function, which must be set by Alphadvisor.
Once we have set the metric we want, usually K-Ratio, we can open an optimization report in Alphadvisor.
We will find something like this:
Each of these optimized parameters allows us to analyze all the results of the System in a clustered manner, looking for the most robust areas of these.
We must explore the Clusters obtained together with their parameters to locate the combinations that are most interesting to explore in our systems.