Optimization of Backtesting Techniques in Automated High Frequency Trading Systems Using the d-Backtest PS Method

D. Th. Vezeris (), C. J. Schinas, Th. S. Kyrgos, V. A. Bizergianidou and I. P. Karkanis
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D. Th. Vezeris: Democritus University of Thrace
C. J. Schinas: Democritus University of Thrace
Th. S. Kyrgos: COSMOS4U
V. A. Bizergianidou: Democritus University of Thrace
I. P. Karkanis: COSMOS4U

Computational Economics, 2020, vol. 56, issue 4, No 12, 975-1054

Abstract: Abstract Trading strategies intended for high frequency trading in Forex markets are executed by cutting-edge automated trading systems. Such systems implement algorithmic trading strategies and are configured with predefined optimized parameters in order to generate entry and exit orders and execute trades on trading platforms. Three high-frequency automated trading systems were developed in the current research, using the MACD (oscillator), the SMA (moving average) and the PIVOT points (price crossover) technical indicators. The systems traded on hourly time frames, employing historical data of closing prices and the parameter optimization for each system was done using the d-Backtest PS method over weekly periods. With this work we intend to extend the methods of parameter selection for automated trading systems in high frequency trading. Through this research and the interpretation and evaluation of its results, we conclude that backtesting parameters’ optimization, especially through the d-Backtest PS method, is much more profitable than the default values of the parameters and that the optimization of parameters yields the highest profits through the implementation of restrictive relationships among them. It is also observed that the selection of the most profitable parameters of a trading system can be unrestricted, rendering the validation of the minor divergence occurring among slightly varying prices redundant. Meanwhile, other conclusions that can be drawn are that the most profitable classification system employed by the d-Backtest PS method is calibrated by means of two validation periods and that the most efficient profitability ratio between historical data period and validation period is 6:1 (in- and out-of-the-sample ratio).

Keywords: d-Backtest PS method; Optimal historical data period selection; Backtesting optimization algorithms; Expert backtesting systems; MACD; SMA; PIVOT; Forex; Exchange rates (AUDUSD; EURUSD; GBPUSD; USDCAD; USDJPY); Metals (XAUUSD) (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10614-019-09956-1

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