Ultimate Algorithmic Trading System

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GENETIC OPTIMIZATION, WALK FORWARD
same algorithm, except instead of adding the volatility level, it subtracts it. Here are
the choppy market long and short entries:
Buy Next Barat Close + xPercent ∗ xAverage(Range, 20)stop
Sell Short Next Barat Close − xPercent ∗ xAverage(Range, 20)stop
Now if the CMI indicates a trending market by exhibiting a higher value, then
the system switches to the trend-following mechanism. Here, the system falls back
on the old Donchian breakout algorithm. Longs are put on at the Highest High of
xTrendBars and shorts are put on at the Lowest Low of xTrendBars. The entry rules
for trending markets are:
BuyNextBarat Highest(High, xTrendBars)stop
Sell Short Next Barat Lowest(Low, xTrendBars)stop
Looking at our entry rules, we can see there are three optimizable parameters:
xLevel, xPercent, and xTrendBars. The last two parameters can be further optimized
for long entries and short entries. If we allow these two parameters to be different
for longs versus shorts, then instead of two parameters we have four. So all in all,
there will be a total of five optimizable parameters:
1. xLevel—Choppy Market value
2. xPercentBuys—Percent of 20-day exponential moving average of Range
3. xPercentSells—Percent of 20-day exponential moving average of Range
4. xTrendBarsBuys—Number of Highest high/Lowest low lookback bars
5. xTrendBarsSells—Number of Highest high/Lowest low lookback bars
We could simply pull out of thin air some values for these parameters or we could
use TradeStation’s tools to help zero in on a robust solution. We now have a trading
system and a set of five optimizable parameters, so the next step is to come up with
a range of values that we want to optimize the parameters across. These different
ranges can also be called our search space. Here are the ranges and iterations for
each of the parameters for our system, TA1:
1. xLevel { 25 to 75 by 5 increments } [11 iterations]
2. xPercentBuys { 0.25 to 0.75 by 0.05 increments } [11 iterations]
3. xPercentSells { 0.25 to 0.75 by 0.05 increments } [11 iterations]
4. xTrendBarsBuy { 8to20by4} [4 iterations]
5. xTrendBarsSell { 8to20by4} [4 iterations]
If we do the math (11 * 11 * 11 * 4 * 4), we come up with a total of 21,296
iterations. It will take this many iterations to search the entire space if we apply an
exhaustive search algorithm. So the computer will need to run 21,296 tests on the
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