Optimization of technical indicators’ parameters for intraday data using optics – inspired optimization (OIO): a case study of Tehran stock exchange

Subject Areas : Financial engineering

Mohammad Ali Rastegar ¹ ( Financial Engineering Group, Industrial & Systems Engineering, Tarbiat Modares University )
Farah Ashuri ² ( kharazmi University )

Received: 2017-11-05 Accepted : 2017-12-31 Published : 2018-06-22

Keywords: Technical indicators – intra-day stock data – trading system – meta-heuristic algorithms – artificial neural network,

Abstract :

In this paper a stock trading system based on the combination of six technical indicators is designed. The indicators are combined using an artificial neural network and their parameters are optimized using convex combination-based optics-inspired optimization (COIO) algorithm. In the proposed model the technical indicators’ optimized parameters are obtained using both COIO and genetic algorithms with the aim of maximization of modified Sharpe ratio. The presented paper uses stock intra-day prices as input data and considers the transaction costs. The designed strategy is compared against several other approaches including: using the indicators’ default parameters, buy and hold strategy and optimization using genetic algorithm, for both daily and intra-day prices and due to a greater modified Sharpe ratio for the proposed model, its superiority is shown in all cases. Moreover, in a comparison based on end- of- period returns, it is shown that without considering the transaction costs the results of the intra-day data beats the results of the daily data while no superiority is observed when considering the transaction costs. So reducing the transaction costs is recommended to motivate traders to trade on an intra-day basis.