Tips and tricks on AFL

Trading systems in AFL

Introduction

Trading successfully without a system is extremely difficult. Most traders lose money because they base investment decisions on emotions. Fear, greed, hope and panic cause people to make poor decisions. It is also nearly impossible for most traders to analyze hundreds of thousands of data entries to determine patterns and probability. This is the place where AmiBroker can help you a lot. It can scan the whole database for buy and sell signals defined by you. Is is also able to back-test and optimize large amounts of historical data, to give you the very best possible parameters of your trading system.

Testing your system

Always divide your data into at least two sections, one section to optimize, and the other section to test. After finding the optimum parameters for the optimized data, study the performance of the same parameters on the test data. The results should be similar. A trading system’s performance will fluctuate from year to year on a single security. So, to get a reliable result, the optimization needs to be carried out over a good number of stocks within an exchange or your portfolio. If the portfolio profit shows about the same profit during the optimized period as compared to the complete data range, then you have reliable results. If not, you have simply over-optimized your system.