Discussion of article "Separate optimization of a strategy on trend and flat conditions"

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New article Separate optimization of a strategy on trend and flat conditions has been published:

The article considers applying the separate optimization method during various market conditions. Separate optimization means defining trading system's optimal parameters by optimizing for an uptrend and downtrend separately. To reduce the effect of false signals and improve profitability, the systems are made flexible, meaning they have some specific set of settings or input data, which is justified because the market behavior is constantly changing.

When developing trading strategies, the first task is setting market entry conditions, position tracking method and exit point. Various mathematical, statistical and other analytical methods are applied for that. They are often reinforced with ready-made autonomous systems used to assess market characteristics in the form of indicators. One of the main issues when developing any trading strategy is the lack of versatility. A trading system is not able to work in all possible market conditions with equal efficiency. Therefore, traders usually select conditions for detecting certain (potentially profitable) market conditions when developing Expert Advisors. 

Besides, each trading system has its drawbacks. Trend-following strategies fail during prolonged flat movements, while flat-based ones provide false entries during strong directional movements. To reduce the effect of false signals and improve profitability, the systems are made flexible, meaning they have some specific set of settings or input data, which is justified because the market behavior is constantly changing.

Over time, any trading system becomes less efficient and therefore, there is a need to adapt its parameters to new conditions. The built-in MetaTrader 5 Strategy Tester is meant to tackle this issue. This tool helps analyzing the performance of any trading EA on history and define optimal settings for their further use as a basis in real trading.


Concept of separate optimization

In this article, we will consider applying the Strategy Tester in a broader sense. Obviously, the majority of trading systems trade in two directions (buying and selling under certain conditions). The Fig. 1 shows a simple example of a trading strategy in action. Its idea is simple — buy at a low price and sell at a high one.

Author: Alexander Fedosov

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