Technical Analysis with Optimal Trader

Frequently Asked Questions

 

What optimization length is the best to use?

Most of the time a longer optimization period produces better results. 500 to 1500 days often work well. Unfortunately, all stocks do not have such a long period of historical prices available and you are forced to use shorter periods. Other alternatives are to set the parameters manually or to use Optimal Trader's default parameters. Be careful not to overfit the models. Optimization results often give a better impression with shorter periods compared with longer periods, but longer periods produce more reliable signals because the models will be trained with wider range of scenarios.

If a stock has an entirely different price development pattern a long time ago compared with today it may be better to use shorter optimization periods.

Read more in the section Technical analysis with optimized parameters.

 

How should I adjust my settings to redemption fees of mutual funds (a fee applied only when selling shares)?

If you set the brokerage fee to 1%, then 1% is charged at every trading occasion.

Some funds do not charge an initial fee when buying fund shares, but only charge their shareholders when they sell shares (redemption fee). If that is the case then set the brokerage fee to half the redemption fee, because the redemption fee is only drawn at every second trading occasion.

So if your redemption fee is 1%, then set the brokerage fee to 0.5%.

 

What is the difference of the number of days you set when you are back testing and the number of days of the optimization period?

The optimization period defines how long time backward is used when optimizing the parameters of the models. If the optimization period is 250 days it means that the models are tested the last 250 days in order to find the best possible parameter combination. This optimal setting is used to produce a trading signal(buy or sell) for today.

Back Testing simulates use of Optimal Trader through carrying out this optimization day for day a number of days backward in time to get daily trading signals. Back Testing thus provides you with an answer of how well the models have worked in reality.

The optimization period that is used each day in Back Testing is the same as the one used for normal optimization.

The numbers days you set in Back Testing define the number of days the simulation is carried out.

 

Why aren't historical prices adjusted in Optimal Trader after a stock split?

Optimal Trader mostly provides historical prices adjusted to splits and dividends. To get the adjusted prices you have to redownload the specific stock because the prices are not automatically adjusted on the client computers. First remove the stock from the portfolio, and then download it again to get the adjusted prices from our server.

If historical prices are not automatically adjusted you can adjust them manually using the Options/Split Adjustment function or editing the price data in Excel.

 

Sometimes the trading signal of today(the arrows to the right of the chart) are green while at the same time it is red at the right edge of the chart. Shouldn't it be green at the right edge in the chart since it shows the price of today?

This is easiest explained with an example. Take a look at the chart below.

  • On 10th September a sell signal is generated. The field between the 10th September and the 11th September is red.
  • On 11th September a sell signal is generated. The field between the 11th September and the 12th September (far to the right in the chart) is red.
  • On the 12th September (day of today) a buy signal is generated. You can't illustrate that in the chart and it is thus shown to the right of the chart (the green upward arrows).

Chart of trading signals

 

What is the date on the right edge of the chart? Why isn't the date displayed in the chart?

Take a look at the chart of the previous question. If the date would have been displayed at the last price value, the graph would have been forced to be a bit smaller. We have given priority to as large charts as possible and thus we have chosen not to show the last date in the charts. There are two easy ways to see the date for the last price value:

  • Keep your mouse above the curve in a chart and after a second a tooltip is shown with the date and price.
  • In the information box to the right of the chart the date for the last stock price is shown.

 

I have sent you my User Key. But I still only see a small selection of stocks and funds when I want to add new equities. Why?

You must update the lists in the Add dialogue to obtain the full lists. Click on Update under a Sub Category and you will have access to all equities in that market. This must be repeated for every market you are interested in.

 

How do I find stocks and funds which are suited for trading?

Use the Portfolio Scan feature of Optimal Trader to find winning equities based on your investment criteria and neural network forecasting.

Read magazines with stock analyses to find interesting investment choices and examine how well the stocks are suited for trading in Optimal Trader.

You can also use fundamental analysis to find stocks based on your investment criteria. There are several free online functions to filter and sort stocks based on fundamental facts.

 

Optimization produces good results on historical data, but is it reliable to use for forecasting?

When performing standard optimization, parameters in the system are tested with different values and the values that have produced the highest profit are the ones used. If you use long optimization periods standard optimization often produce stable and profitable systems, but there are more reliable ways to optimize the parameters.

In Optimal Trader you have the possibility of optimizing the models so that they are trying to produce high and stable profit instead of trying to maximize the total profit. The result is that the probability of profitable future results increases. This option is called Robust Optimization.

If you do not want to use optimized parameters you can use Optimal Trader's default parameters which are selected to generally to produce reliable and stable results, or set the parameters manually.

Read more in the section Technical analysis with optimized parameters.

 

Each time I optimize the neural network I get slightly different results without changing any settings. Why?

Neural networks are not deterministic systems, but are initiated from a random initial state and are trained from that state to make conclusions about the training sequence( price history).

It is possible to make a deterministic system out of a neural network, but it is not advisable. This is because the training sometimes fails and you would always get the same results when training the network again if it was initiated from the same initial state.

If you select Model Settings/ANN and check Deterministic Training, the network will always be trained from the same initial state and you will always get the same results.

It is possible to obtain more consistent results at a cost of longer processing time by adjusting the following parameters:
1. Increase the Number of Networks - Because every single neural network produces slightly different results, the results of several networks are combined to produce a more stable result. The value of this parameter sets the number of networks used for the combined result.
2. Increase the Number of Epochs - Determines how much the network will be trained. Please observe that high values may result in curve fitting.

This discussion only applies to neural networks. Other models in Optimal Trader are deterministic systems.

 

Does the neural network use the five active models as input data just as the Combined Analysis Model does? Or is it a stand-alone model?

The neural network uses both price history and technical indicators as inputs, but does not use the results of the active models. It is better to let the neural network find patterns by itself than feeding it with data that is already adapted to price behavior. Such a net would not become stable and general. It could find a “trivial” solution such as to entirely follow one of the active models.

 

My signals change a lot from day to day, sometimes even intraday. Why?

The models and indicators of Optimal Trader always generate either a buy or a sell signal. The coloured fields and the signal of today are either green or red, so any uncertainty can not be detected in the price charts or the trading signals of today. If there is an uncertainty, the signals can change often, historically and even intraday. Only looking at the coloured signals is not enough in these situations.

In the enlarged layout you can evaluate the strength of the trading signal. If the signal for a model is close to a limit, the trading signals can vary a lot. This should be seen as a sign that the signal is not strong and the model is having difficulty drawing conclusions.

Example: If you double-click the ANN-chart you can see in the lower chart that the model curve is oscillating between 0 and 100. The limit between a buy and a sell signal is 50. If the model curve for the neural network is moving between 45 and 55 for a period of time, the trading signals may change often, but in reality the difference is very small. Thus, values close to the limit indicate uncertainty. If you never take a look at the model curves you will not see this uncertainty!

Every model is different and different model curves must be understood in different ways. Read more about the different models in the section Technical Analysis Models and Indicators.

 

How can I see the strength of the trading signals?

See the answer to the previous question.

 

Why are the historical trading signals (the green and red fields) changing sometimes?

If you optimize the parameters of a model a specific day, parameters producing best results the last 1000 days are generated (if you haven't changed any settings). It is also for these parameters Optimal Trader is showing historical trading signals by means of the coloured fields. These parameters are usually quite stable if you use long optimization periods. But if you optimize the same model a day later it may sometimes happen that Optimal Trader finds another parameter combination which has produced better results because the basis for the optimization has changed. Historical trading signals will also be changed as a result of changed parameters.

 

I run the function Auto Models for every new stock in my portfolio. How often should I do that?

Auto Models only generate fast and approximate results. The most precise option is to backtest all models a couple of hundred days and then use the best models as active models. Additionally, you get a perception of how well the models have performed in reality with the current settings.

It is recommended to do a back test for every new instrument, but it is unfortunately very computer power demanding and sometimes takes several hours to complete. Back Testing does however not needed to be done so often, perhaps every month in order to see if changed market conditions have influenced the results.

 

Can I backup my portfolios and use the data on my new computer?

Follow the instructions below to backup your data and use it on a new computer.

On your old computer:

1. All your portfolios with their settings are saved under the "data" folder under the Optimal Trader program folder(usually "C:/Program Files/Optimal Trader"). Copy the "data"-folder to a safe place, maybe a memory stick or a CD.

On your new computer:

2. Install Optimal Trader on the new computer

3. Start Optimal Trader and shut it down immediately after it is loaded.

4. Delete the "data" folder from the program folder (usually "C:/Program Files/Optimal Trader")

5. Take your saved "data" folder and paste it into the Optimal Trader program folder.

6. Start Optimal Trader and click Ok if you see a warning dialog.

7. Select Options/User Key to create a new User Key and send it to us.

 

Wait until we have activated the new User Key after which you can use Optimal Trader again.

 

How do you zoom in the charts?

You can zoom into a region of a chart by clicking and dragging with the left mouse button in the chart. The time periods of the other charts are automatically updated to the same region.

 

How do I know which version of Optimal Trader I have installed?

You can check the version of your copy under Options / About Optimal Trader.

 

Is the trial software/evaluation version the same as a full version?

Yes, the trial version is exactly the same software as the full version. In fact when you purchase Optimal Trader, we will unlock the trial/evaluation version to a full version. No re-installation is required.

 

 

 

 

 

 

 

 

 

 

 

 

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