The 6 Steps Rule for Optimization of the Best Trading Systems - Must Read

What is the biggest mistake that do almost everybody when they optimize Forex trading systems? They ignore The 6-Steps-Rule or even doesn’t know about it ! And the market doesn’t forgive that… Don’t do this mistake, learn about it by reading the article…

As I say earlier the simpler rules and indicators in Forex trading systems the better. So you could use the most simple rules like intersection of fast and slow moving averages. And we’ll take it for detailed view of the 6-steps-rule that is the last stage to build a successful Forex trading system.

Step 1. Optimization of SLOW moving average

So as you can see on the image below, we use training (in-sample) and testing (out of sample) period. And it is very important to understand that on out-of-sample period we see what we can get on practice using that Forex trading system that we optimize. So let’s draw our attention to the picture below.

We see the dynamics of our deposit that we’ve received after optimization of slow moving average. It has a weak trend, but on the testing period we see flat and big drawdowns. It means that in real trading, on practice, we shouldn’t use it because of big risks and small potential profits. But it just step 1! What is gonna change further?

Step 2. Optimization of FAST moving average

Now we see that the dynamics of our deposit become better. On testing period we see profits, but it still full of risky drawdowns that promise us losses and very uncomfortable trading.

So let’s continue optimizing…

Step 3. Select an optimum timeframe

It is much better. How can we optimize Forex trading systems by timeframes or timefilters? It just needs to go over almost all timeframes that we could. Optimize and test on “daily”, “weekly”, “4 hour”, “1 hour”, “15 minutes”, “5 minutes”, “1 minute”timeframes and choose one that shows the best profits and smallest drawdowns. But also I recommend to add even more timeframes, like 30, 31, 32, 33 and so on… But it needs a special software.

Step 4. Optimization of risk-limit (stop-loss)

Stop-loss is an order to buy (or sell) a security once the price of the security climbed above (or dropped below) a specified stop price. It is has a fixed value and usually set up just before order to buy (or sell) is open.

The stop-loss order is adjusted continually based on fluctuations in the market price, always maintaining the same percentage below (or above) the market price.It is a very important part of Money Management on Forex. Never start to trading without using that!

Step 5. Optimization of trailing-stop

A trailing stop order sets the stop price at a fixed amount below the market price with an attached “trailing” amount. And after it optimization we see that our deposit dynamics looks almost like a line. It is a great result! Now we can expect good profitsand low risks.

Step 6. Profit maximization

And the last step is to maximization of profits of Forex trading system. It means that you could optimize all the variables that you have optimized before but in this case in the same time. It is not necessary to set up big spreads between first and the last value of period of optimization for each parameter. And we see that the absolute value of our profit become more closer to 25000.