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When using MAE and MFE to set stops and profit targets, if you only
use histograms of their distributions you'll sometimes get very
surprising results when you re-run the backtest with those stops and
profit targets. This is because the histograms don't show you the
closed profits/losses of the trades associated with the MAE and MFE
values. So sometimes it can be useful to make simple scatter plots of
the trades, with profit/loss on the Y axis and MAE or MFE on the X
axis to see this relationship. You could then break this down by all,
winning, losing, long and short trades. And if you do, you'll see
there are fundamental differences in relationships between P/L and MAE
for winning and losing trades, for example.
--- In amibroker@xxxxxxxxxxxxxxx, "Tomasz Janeczko" <amibroker@xxxx>
wrote:
> MAE/MFE relate to SINGLE trade only. Drawdowns relate to portfolio
equity,
> also Max drawdown is peak-through distance while MAE is only
entry->through
> distance (smaller).
>
> The main application of MAE/MFE is properly setting max. loss/profit
stops.
>
> Best regards,
> Tomasz Janeczko
> amibroker.com
> ----- Original Message -----
> From: "quanttrader714" <quanttrader714@xxxx>
> To: <amibroker@xxxxxxxxxxxxxxx>
> Sent: Friday, November 14, 2003 5:24 PM
> Subject: [amibroker] Re: MAE and MFE Interpretations
>
>
> > Think of MAE as the most a trade has gone against you during its
life
> > and MFE as the most a trade has gone in your favor. MAE is almost
> > like maxdd except it's the lowest point on the equity line of a
single
> > trade as opposed to the max "peak to subsequent trough
difference" as
> > with maxdd. MFE is simply the highest point on a trade's equity
> > line. The graphs show the distributions of MAE and MFE for the
trades
> > in a backtest and can give you an idea of what to expect in the
> > future, assuming past results are indicative. For example, you
might
> > look at the MAE histogram and see that almost all trades went 5%
or
> > less against you at their worst point. Then, if a large number of
> > your system's trades have larger MAEs in real time, it should
raise a
> > red flag. Keep in mind that the vertical bars in the histogram
are
> > actually bins into which the MAE observations fall. So the first
bin
> > would contain observations from -5% to 0, the second bin from
-10% to
> > -5.00001% (or whatever), etc. The same principle applies to the
MFE
> > histogram. You can also use this info to help figure out where
to put
> > stops and profit targets or to compare and contrast systems to see
> > which best suit your temperment. Or again, as a benchmark based
on
> > past performance.
> >
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "Ken Close" <closeks@xxxx>
wrote:
> > > B Actually I did and deleted it because at the time I had no
> > interest.
> > > Now I have the interest. I should have searched the yahoo
site. At
> > > least I did a google search.
> > >
> > > Do you not agree that most of us (some of us?) are often on
> > > informational overload, both from mastering all of the AB
features,
> > to
> > > ingesting new learnings from related topics?? I am in this
> > category.
> > >
> > > Thanks for reminding me.
> > >
> > > Ken
> > >
> > > -----Original Message-----
> > > From: b519b [mailto:b519b@x...]
> > > Sent: Friday, November 14, 2003 3:01 AM
> > > To: amibroker@xxxxxxxxxxxxxxx
> > > Subject: [amibroker] Re: MAE and MFE Interpretations
> > >
> > > Ken,
> > >
> > > Did you see this post?
> > >
> > > http://groups.yahoo.com/group/amibroker/message/51588
> > >
> > >
> > >
> > >
> > >
> > >
> > > Send BUG REPORTS to bugs@xxxx
> > > Send SUGGESTIONS to suggest@xxxx
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> > >
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> >
> >
> >
> > Send BUG REPORTS to bugs@xxxx
> > Send SUGGESTIONS to suggest@xxxx
> > -----------------------------------------
> > Post AmiQuote-related messages ONLY to: amiquote@xxxxxxxxxxxxxxx
> > (Web page: http://groups.yahoo.com/group/amiquote/messages/)
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> > Check group FAQ at:
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> >
> >
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