Genetic Algorithms and Rule-Based Systems by J.O. Katz
This trader and consultant uses a genetic algorithm to discover the best rules and parameters for a trading system.
Previously, I demonstrated that simple two-rule systems could be profitable. I used a genetic algorithm (GA) to discover the best parameters for the rules. Each rule had three parameters: two lookback periods and a threshold value.
Other than the parameters, the rules remained constant. The GA was used only to determine optimal values for the lookbacks and the thresholds. What would happen if I allowed a GA to search, not only for the best parameters, but also for the best rules? The rules set forth in my January 1997 article, “Developing systems with a rule-based approach,” involved simple price comparisons. Perhaps I could achieve better trading results if I had, for example, one rule to make a price comparison, another rule to determine whether the moon is full and a third rule to check whether the small speculators index is greater than 90.