[op-tuh-muh-zey-shuh
n] 
| 1. | the fact of optimizing; making the best of anything. |
| 2. | the condition of being optimized. |
| 3. | Mathematics. a mathematical technique for finding a maximum or minimum value of a function of several variables subject to a set of constraints, as linear programming or systems analysis. |
| op·ti·mi·za·tion (ŏp'tə-mĭ-zā'shən) n. The procedure or procedures used to make a system or design as effective or functional as possible, especially the mathematical techniques involved. |
Optimization
In the context of technical analysis, it is the process of adjusting one's trading system in an attempt to make it more effective. These adjustments include changing the number of periods used in moving averages, changing the number of indicators used, or simply taking away what doesn't work.
Investopedia Commentary
For example, if an investor has a simple trading system that is just composed of a crossover of closing price and a moving average, by changing the periods of the moving average, the trader will get different profits, risk, capital drawdowns, etc. Thus, optimization helps you to choose the optimal parameters to trade.
Related Links
Introduction To Technical Analysis
Basics of Weighted Moving Averages
Backtesting: Interpreting the Past
See also: Backtesting, Bar, Crossover, Drawdown, Moving Average, Technical Analysis, Test, Universe of Securities