Trading Strategy Optimization via Textual Gradient

Abstract:Quantitative trading strategy design aims to discover trading programs from historical data that remain effective in future markets, which can be viewed as a black-box program optimization problem. LLM-based textual gradients offer a promising approach by providing explicit optimization directions for iterative strategy refinement. However, directly applying textual gradients faces two challenges: (1) optimization is myopic, underutilizing experience from previous evaluations; and (2) aggregate backtest feedback overlooks temporal robustness, potentially favoring strategies that perform well only in specific market periods. To address these challenges, we propose TradeGrad, an experience-guided textual-gradient framework for robust trading strategy optimization. TradeGrad leverages accumulated optimization experience to estimate textual gradients and employs multi-scale revisions for both strategy exploration and refinement. It further introduces the Cross-Period Robust Objective (CPRO), which emphasizes performance in unfavorable historical periods to promote temporal robustness. Experiments on cross-sectional and time-series strategy design in Chinese A-share and U.S. equity markets show that TradeGrad achieves the best in-sample and out-of-sample performance across all four settings. Notably, its Chinese cross-sectional strategy achieves 27.99% annualized return, 12.19% maximum drawdown, and a Sharpe ratio of 1.63, approximately 68% higher than the CSI 300 benchmark. Further analyses validate the proposed components and show consistent improvements in both in-sample and out-of-sample performance throughout optimization. The code is available at this https URL.

Artificial Intelligence (cs.AI)

arXiv:2610.03128 [cs.AI]

(or arXiv:2610.03128v1 [cs.AI] for this version)

https://doi.org/10.48550/arXiv.2610.03128 Focus to learn more arXiv-issued DOI via DataCite (pending registration)

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