Forex Automaton front page

With trade entry parameter range extended, GBP/USD optimum moves closer to the rest

Mikhail Kopytine — Mon, 29 Jun 2009 14:40:00 +0000

With the trade-entry parameter range extended into the more conservative area, the GBP/USD optimization results begin to look more like those of other currency pairs, with arguably a better optimum.

Optimizing the forex trading system: USD/CHF revisited

Mikhail Kopytine — Wed, 24 Jun 2009 19:03:00 +0000

This study covers an extended range of the trade-entry threshold parameter, the one that controls the "patience" of a trading system or the amount of "excitement" about a trade idea needed to enter the trade. With the trade-entry parameter extended into the more conservative area, the USD/CHF optimization results begin to look more like those of other currency pairs.

Optimizing the forex trading system: AUD/USD revisited

Mikhail Kopytine — Tue, 23 Jun 2009 15:58:00 +0000

The recent changes to the trading system optimization technique do show an effect on the AUD/USD optimization, shifting the preferred value of the forecasting quality parameter. This study covers an extended range of the trade-entry threshold parameter, the one that controls the "patience" of a trading system or the amount of "excitement" about a trade idea needed to enter the trade. The new optimum takes advantage of that as well.

Optimizing the forex trading system for USD/CAD: the optimal "trader ...

Mikhail Kopytine — Fri, 19 Jun 2009 23:01:00 +0000

I am revisiting the case of USD/CAD on the day scale after a few important changes to the trading system optimization technique have been introduced. The entry threshold parameter, the one that controls the "patience" of a trading system or the amount of "excitement" about a trade idea needed to enter the trade, takes much higher values in this study, and the optimal "patience" is being seen.

Optimizing the forex trading system parameters: GBP/USD revisited

Mikhail Kopytine — Thu, 11 Jun 2009 13:49:00 +0000

After important changes to the trading system optimization methodology, I am revisiting the case of GBP/USD on the day scale. In this study, the extended range of the entry threshold parameter, same as in the previous EUR/USD and USD/JPY studies, is used. The extended, more conservative threshold values are seen to increase the returns while reducing the risk. Unlike other cases, not one but two attractive ranges of the forecasting control parameter are seen.

A note on USD/CHF optimization.

Mikhail Kopytine — Tue, 09 Jun 2009 17:29:00 +0000

The USD/CHF optimization note originally posted on May 29 has been updated to correct for a mistake in the data selection. Originally, 1 out of 6 runs used for the analysis (17% of the traders considered) contained USD/CAD while others contained USD/CHF data. As a result, some of the optimization results are different.

Optimizing the forex trading system parameters: USD/JPY revisited

Mikhail Kopytine — Tue, 09 Jun 2009 13:29:00 +0000

After important changes to the trading system optimization technique, I am revisiting the case of USD/JPY on the day scale. In this study, the extended range of the entry threshold parameter, same as in the previous EUR/USD study, is used. The extended, more conservative threshold values are seen to increase the returns while reducing the risk.

Optimizing the trading system parameters: EUR/USD revisited

Mikhail Kopytine — Fri, 05 Jun 2009 21:02:00 +0000

After important changes to the trading system optimization methodology, I am revisiting EUR/USD on the day scale. The USD/CAD and USD/CHF reports indicated that our range of trade entry parameter might not include the optimum, consequently the range is extended. As a result, much better performance figures are seen. But caution is needed when comparing even the "minimum-bias" results with those of earlier reports, since the parameter ranges are now different.

Optimizing the forex trading system parameters: USD/CHF

Mikhail Kopytine — Fri, 29 May 2009 21:59:00 +0000

After some important changes to the trading system optimization methodology, I continue with USD/CHF on the day scale -- this currency pair has not been analyzed in this context before.

Optimizing the forex trading system parameters: USD/CAD

Mikhail Kopytine — Wed, 27 May 2009 20:31:00 +0000

After some important changes to the trading system optimization methodology, I continue with USD/CAD on the day scale -- this currency pair has not been analyzed in this context before.

The optimization framework is being upgraded.

Mikhail Kopytine — Tue, 26 May 2009 14:41:00 +0000

Our forex trading system optimization procedure is currently undergoing a change. This change is brought about by the recognition of the fact that a simple arithmetic average of monthly returns, a statistic used so far, is biased upwards and thus provides a falsely optimistic estimator of return. The popular Sharpe ratio statistic, if it incorporates such an estimator, is to be avoided or redefined. Here are some outlines of the upgraded approach.

Possible figures of merit related to return on investment: arithmetic and geometric mean

Mikhail Kopytine — Mon, 18 May 2009 21:31:00 +0000

When evaluating the performance of a trading system, I calculate the first moment (an arithmetic mean of the series of returns) as well as the second one (a variance of the series). Originally my "Sharpe-like" ratio, used to adjust the return for the risk, was a ratio of the first moment to the square root of the second. The series of returns would be composed of annualized returns calculated every month.

Optimizing the forex trading system parameters: AUD/USD

Mikhail Kopytine — Thu, 14 May 2009 19:12:00 +0000

This is the fifth report in the series of the buy-side forex trading system optimization reports for the individual currency pairs, traded on the day scale, which began with AUD/JPY. In the algorithm, the forecast signal whose nature will not be disclosed is fed into the money management framework driven by three adjustable parameters. The set of 13398 parameter combinations represents the totality of possible trading styles under study. The goal is to optimize the trading style by finding, on the basis of the simulated trading performance, such values of parameters as to maximize the return while minimizing risk. The insights obtained in the process may be of general interest, since the problem is common to all traders, robots and humans alike.

Optimizing the forex trading system parameters: GBP/USD

Mikhail Kopytine — Tue, 12 May 2009 19:27:00 +0000

This is the fourth report in the series of forex trading system optimization reports for the individual currency pairs, traded on the day scale, which began with AUD/JPY. In the algorithm, the forecast signal whose nature will not be disclosed is fed into the money management framework driven by three adjustable parameters. The parameters form a multi-dimensional space populated by figures of merit, as obtained by Monte Carlo simulation of independent trading histories. The set of 13398 parameter combinations represents the totality of possible trading styles under study. The goal is to optimize the trading style by finding the best values of parameters on the basis of the simulated trading performance. The insights obtained in the process may be of general interest, since the problem of money management is common to all traders, robots and humans alike.

Optimizing the forex trading system parameters: USD/JPY

Mikhail Kopytine — Fri, 01 May 2009 17:11:00 +0000

I continue with the series of forex trading system optimization reports for the individual currency pairs, traded on the day scale, which began with AUD/JPY. In the algorithm, the forecast signal whose nature will not be disclosed is fed into the money management framework driven by three adjustable parameters. In the current test setting, the parameters form a multi-dimensional space populated by figures of merit, as obtained by Monte Carlo simulation of independent trading histories. The set of parameter combinations constitutes the totality of possible trading strategies under study. The goal is to optimize the trading strategy by finding the best values of parameters on the basis of the simulated trading data.

CHF/JPY and EUR/AUD leading indicator history, 2002-2009

Mikhail Kopytine — Tue, 28 Apr 2009 15:55:00 +0000

In the screening we conducted last summer using the data set from 2002 to early 2008, CHF/JPY was identified as a leading indicator for EUR/AUD. This time-evolution study confirms that the signal was real, as the fairly robust relationship persisted till the middle of 2007. Around the middle of 2007, CHF/JPY and EUR/AUD changed from being positively correlated to being negatively correlated. About the same time, CHF/JPY stopped being a leading indicator for EUR/AUD. Curiously, it's hard to interpret this as a result of changes in the interest rates: dramatic changes in that area did happen, but much later, not until the Fall of 2008.

Optimizing the forex trading system parameters: EUR/USD

Mikhail Kopytine — Fri, 24 Apr 2009 19:28:00 +0000

I continue with the series of forex trading system optimization reports for the individual currency pairs, traded on the day scale, which began with AUD/JPY. In the algorithm, the forecast signal whose nature will not be disclosed is fed into money management framework driven by three adjustable parameters. In the current test setting, the adjustable parameters form a multidimensional space populated by figures of merit, as obtained by Monte Carlo simulation of independent trading histories. The interpretation of the data set leads to a quantitative discussion of relative merits of various trading styles. Two features of the data set make this material unique: first, the data incorporate the real inefficiencies of the real market, as opposed to more academic simulations with martingales. Second, the money management styles are being tested in a setting where the forecasting part is entrusted to the generally successful "artificial intelligence" component.

AUD/JPY and GBP/USD leading indicator history, 2002-2009

Mikhail Kopytine — Mon, 20 Apr 2009 21:41:00 +0000

AUD/JPY and GBP/USD form a weakly correlated pair, often but not always correlated positively, which many traders would regard to be one of the last suspects when it comes to predictive forex correlations. Nonetheless, in the screening we conducted last summer using the data set from 2002 to early 2008, AUD/JPY was found to form a leading indicator for GBP/USD. The feature was found by studying the time-integrated correlation of logarithmic returns in the two time series. As usual in such cases, a detailed time-evolution study is necessary to tell whether this effect is merely a result of a single high-impact event or a recurrent feature. I extend the period of observation up to April 2009, split it into three time windows of varying volatility, and analyze the time stability of the leading indicator effect.

Optimizing the forex trading system parameters: AUD/JPY

Mikhail Kopytine — Fri, 17 Apr 2009 18:08:00 +0000

This is the first Forex Automaton™ report on the optimization of the automated forex trading system performance. The general introduction to the trading system optimization (back-testing) and a brief description of parameters have been posted before. As before, the nature of the forecasting engine and the meaning of the related parameters are intentionally left beyond the scope of the discussion. You will see however that even though money management alone can not turn bad trades into winning trades, the converse is possible. The combined experience of 13, 398 simulated trading histories testifies that a trader can systematically lose money and effectively take extra risk mainly due to the incorrect (too tight) stop-loss placement, despite having the quality of insight equal to that of the winner. It is demonstrated that significant improvement in performance can be achieved by parameter adjustments, guided by an analysis of the simulated trading histories, and an example of reasoning behind such a process is given.

AUD/JPY and EUR/CHF leading indicator history, 2002-2009

Mikhail Kopytine — Wed, 15 Apr 2009 17:34:00 +0000

This is a follow-up report on the predictive feature discovered in the correlation analysis of AUD/JPY and EUR/CHF. The feature was found by studying the time-integrated correlation of logarithmic returns in the two time series. A detailed time-evolution study is necessary to tell whether this effect is merely a result of a single high-impact event or a recurrent feature. The effect in question was found not to exist in the Asia-Pacific trading, therefore in this report I cover the trading hours from 4am to 8pm New York time, which excludes Asia. I extend the period of observation up to April 2009 and analyze the time stability of the leading indicator provided by AUD/JPY for EUR/CHF.