This article will help you understand how and why you need to optimise your automated trading systems parameters and the benefits and pitfalls involved. To start let's explain what exactly we mean by optimisation of your cBot parameters.
What is Optimisation
The word optimise means to make something as good or effective as possible, in the case of an automated trading system (cBot) that is used with the cTrader trading platform it means to find the best possible settings to get the best possible results. Some of these settings can be:
- Trading hours.
- The values of an indicator.
- The optimal take profit or stop loss values.
This is usually accomplished by running the cTraders Optimisation feature over a period of time using past data, so to look back 1 year and find the best settings for your cBots stop-loss you will run the tool from 1 year back to today's date.
Backtesting Your Optimised Settings
Once you have completed the optimisation run using cTrader and found your optimal cBot settings, the next task is to save these settings so you do not lose them and then run a backtest over the same dates.
What Happens Next?
Unfortunately, the markets are unpredictable and just because your system is showing 100% net profit over 1 year with a 5% drawdown, this does not mean you will achieve this with your new settings.
Why Bother Optimising?
By finding the optimal settings for your trading system you increase the odds that it will do well in the future over doing nothing and just using junk data, a classic example is that you discover that between 2:00 pm and 5:00 pm, if no trades were submitted your net profit increased by 10%, you would use these values in your trading systems trading hours settings.
Our Optimisation Guidelines
We have written a comprehensive article about optimisation and curve-fitting, the pros and cons and how best to optimise your trading systems settings, it is a highly recommended read for anyone looking at algorithmic trading.