Modify Trading Style Dialog: Signal Optimization
The Modify Trading Style Dialog allows you to specify the settings associated with a particular trading style. The Signal Optimization page allows you to specify the characteristics to take into account when optimizing a signal for a prediction, entry/exit system, or committee.
& For help with trading styles, see Using Trading Styles.
Selecting the Primary Fitness Value
When signals are optimized, the genetic optimization algorithm uses a concept called "fitness" to determine whether one group of settings is better than another. An example of this would be using the percent gain of the signal as the fitness – higher fitness values indicate a better signal. However, other values can be used to produce signals which should be better at producing more consistent profits.
¨ Optimize signals based on:
This value indicates the primary value to base the fitness on.
· Profits only
This setting indicates to use the annual percent gain of the signal.
· Profits, avoiding volatility (Sharpe Ratio)
This setting indicates to use the Sharpe Ratio, which is the average change in the equity over the standard deviation of those changes. Higher Sharpe Ratios indicate a greater amount of average profit could be made with less day-to-day volatility.
· Profits, avoiding losses (Sortino Ratio)
This setting indicates to use the Sortino Ratio, which is the average change in the equity over the downside deviation of those changes. It is similar to the Sharpe Ratio, but only penalizes downward volatility instead of all volatility.
· Profits, avoiding large losses (Calmar Ratio)
This setting indicates to use the Calmar Ratio, which is the annual percent gain of the signal over the maximum drawdown from high equity. It is similar to the Sharpe Ratio, but penalizes based on the worst case scenario, rather than volatility.
· Trade Expectancy Score
This setting indicates to use the Expectancy Score, which is defined as the "expected profit per dollar risked." Higher expectancy scores indicate a higher expected profit per trade and more opportunities to trade.
· TradingSolutions v2.1 fitness settings
This setting indicates to use the fitness settings used in TradingSolutions v2.1, which allowed multiple values to be combined, but was difficult to configure for finding optimal values. Selecting this setting will display the Fitness Settings… button which will display the Modify Legacy Fitness Settings Dialog, where these values can be viewed and modified.
Ä Note: This setting is primarily included to support trading styles created in TradingSolutions v2.1 and earlier.
þ Risk-adjust profit calculations versus percentage of time in market.
This setting indicates to divide the fitness setting by the percentage of bars spent in the market. The theory is that the less time your money is in the market, the less it is exposed to risk of drawdown. For example, a system gaining 5% while spending 10 bars in the market is considered less risky than a system gaining 5% while spending 50 bars in the market. This is because the first system is more targeted to opportunities and the second system is more vulnerable to external effects on price.
Ä Note: Using this setting can result in significantly less profitable trading systems. Since systems are penalized based on their time in the market, this can yield in settings which result in only a few brief trades.
þ Risk-adjust trade expectancy versus average losing trade.
This setting indicates to include a risk adjustment in the fitness calculation when Trade Expectancy Score is selected. The risk adjustment divides the trade expectancy by the average loss.
Optimizing on Trading Frequency and Length
The following options are available for adding additional criteria to the optimization. Some settings tried during optimization may result in a few lengthy trades which perform well on the optimization data, but do not perform well in the general case.
If these options are enabled and the criteria are not met, the fitness will be penalized by how far out of the range they are. In other words, after the primary fitness value is calculated, a penalty is applied proportional to the amount by which the range is missed. The penalties are very large, so penalized values may be displayed off of normal graphs associated with optimization performance.
þ Limit end-of-day trading frequency
This setting indicates to limit the average annual trades to a given range. 50 annual trades would result in a trade approximately once per week.
þ Limit end-of-day trade length
This setting indicates to limit the average trade length to a given range. 5 bars would result in the average trade lasting approximately one week.
þ Limit intraday trading frequency
This setting indicating to limit the average weekly trades to a given range. The actual frequency of trades will be dependent on the periodicity of the data.
þ Limit intraday trade length
This setting indicating to limit the average trade length to a given range. The actual length of trades will be dependent on the periodicity of the data.
Ä Note: If you would like to use different settings for different intraday periodicities, you will need to different trading styles to use with the different periodicities.
What Do I Do Next?
If you are finished modifying the settings associated with the trading style, press the OK button to save your changes or select another property page. If you would like to exit from this dialog without performing any changes, press the Cancel button.
Additional Property Pages
The Modify Trading Style Dialog has the following property pages.
This page allows you to set the name, broker settings, and position sizing.
This page allows you to set limits, stops, and slippage values.
This page allows you to specify the characteristics to take into account when optimizing an entry/exit signal.
This page allows you to specify which trading style settings are available for optimization.
This page allows you to specify the fields to use for values during signal analysis.
& For help using property pages, see the help for Property Pages.
How Did I Get Here?
The Modify Trading Style Dialog is displayed when you press the Add New… button or the Edit… button on the Define Trading Styles Dialog.