Many investors study the movement of and the statistical properties of market prices and volumes and base their decisions upon such technical analysis.

A Typical Technical Analysis Investment System

  • Enter a long order when the closing price of the stock is greater than the 30-day simple moving average of the closing price.
  • Close a long order when the closing price of the stock falls below the 10-day weighted moving average of the low price.

The construction of an successful investment system is often time-consuming and must be performed periodically as market conditions change. Furthermore, a system which works well for one stock may not be profitable for another stock.

Because of the number of possible indicator terms multiplied by the number of variations of each indicator, a genetic programming search may be efficiently employed to quickly find investment systems.

Remove the Blinders

Do not fixate on one indicator to the exclusion of others. It is impossible to know which indicators will produce a good system for a particular security and time period so cast a wide net. Investors often have 'pet' indicators to which they've grown fond. The indicator, like the market, doesn't know that you love it.

Each trading rule should be required to periodically prove its worth. Most investors resist performing this critical task due to the effort demanded. Now the process is significantly easier with modern evolutionary computation techniques.

Genetic Programming Versatility

A genetic programming search will use the given components at random to find novel systems. Occasionally it will derive trading systems already given a name but usually the system is original.

Would you like a trading system with your name on it? I say only half in jest, give Genetic System Search for Technical Analysis a set of data and let it churn for a few minutes. Voilà! You have an indicator to which you can attach your name. Furthermore, terms can be added to the algorithm's fitness function to direct the solution. It is possible to automatically evolve trading systems that do not exhibit large drawdowns and long runs of losing trades.