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The process of strategy optimization further enhances and automates this process. Strategy optimization is the search for the set of optimum parameters for the defined criteria. By testing a range of signal input values, optimization aids in selecting the values that correspond, based on historical data, to the best strategy performance. Optimization aids in better understanding of strategy's characteristics and in creating new criteria for entries and exits.
Optimization can have detrimental effects if the user searches for the combination of inputs based solely on the best performance over a period of historical data and focuses to too much on market conditions that may never occur again. This approach is known as over-optimization or curve-fitting. Performance will not be the same in real trading, since historical patterns are highly unlikely to be repeated.
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