Parameter Optimization in Algorithmic Finance

Quantopian had a blog post a while ago about parameter optimization when building a trading algorithm.  What is parameter optimization?  In the simplest sense, it’s selecting the variable settings that go into your algorithm.  For example, when using a moving average, one must choose a number of days over which to calculate the moving average, and different lengths will have different effects on the outcome of the trading strategy.  So how does one choose the best parameters?  Quantopian discusses the pros and cons of the two most common methods, which are batch optimization (i.e. brute force) and walk-forward optimization.

 

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