Ultimate Algorithmic Trading System

we have, because who has the time to do a multimillion-iterations optimization
loop? Wait a minute—this book is about algorithms—right? This task is definitely
not doable with a run-of-the-mill exhaustive search optimization engine. An
exhaustive search optimization is where you use brute force and test every possible
combination—no stone is left unturned. Come to think of it, AmiBroker has access
to three forms of genetic optimization. With the use of genetic optimization (GO)
and artificial intelligence, we can accomplish the task and do it in just a few minutes.
Not all iterations are executed, only those that fit a certain fitness. Imagine millions
and millions of optimizations carried out in minutes instead of days or even months.
Genetic optimization is an awesome tool, and this very topic will be discussed in
Chapter 8. Right now, even if you don’t understand artificial intelligence, just
know it is the tool that we need to accomplish this task.
All optimizations will be carried out at the portfolio level. Individual market
optimizations will not be conducted. This will cut down considerably on the total
number of optimizations. Each set of parameters will be applied to each market in
the portfolio, and only one set will be chosen to represent each algorithm. Also,
like I said earlier, we are not trying to fit a system to data in an attempt to create a
trading plan. We are just trying to cover all bases in this algorithm comparison. The
winning parameter sets will be used for illustration purposes only.
AmiBroker was able to complete the task in roughly 40 minutes. This time
period covered all optimizations across the four algorithms. Pretty darn impressive!
Table 3.11 shows the top 10 parameter sets for each algorithm and their associated
profit/loss, maximum drawdown, number of trades, average trade, profit factor,
Ulcer index, and percent winners.
Table 3.12 shows the best parameters sets from each optimization.
And the winner is—triple moving average! The results show a unanimous
champion, the triple moving average. The Donchian algorithm came in second with
the Bollinger algorithm close behind in third. The winner produced a tremendous
profit-to-drawdown ratio of 7.04. Quite a bit better than the second place Donchian
Channels. The TMA accomplished this feat by trading only 574 times. Before
discussing the winners let’s discuss the also-rans.
The DMA algorithm came in last place. It looks like using the parameter sets
revolving around an ultra-short length of 9, a long length of 160, and a $5,000
money management stop shows the best results. These numbers were derived from
taking an average of the top 10 parameter sets. These numbers really don’t make
sense; the normal 1:2 and 1:3 ratio wasn’t anywhere near the top. Basically, the
parameters are telling us the nine-period moving average will eventually get on the
trend, after going back and forth for a while, and hold onto it tenaciously.
The Bollinger Band algorithm came in third place, but with very respectable
results. The parameter sets revolving around a 100-bar moving average length and
2.25 standard deviations and a $4,000 money management stop show the best
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COMPLETE TRADING ALGORITHMS
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