MAE, MFE etc.

["Walter Lake" <wlake@xxxxxxxxx>]

Hi to those who posted, and to those that wrote privately.

"Couple of issues were unclear. In defining MAE, you refer to "lowest
subsequent low." Does that include intra-day or only closing lows?
  Does it include the low on the day of the trade?
  Does it have to be calculated for every day while in the trade?"

I suppose it could be calculated intra-day, I don't have any experience with
it, as I'm an end-of-day person. There is someone else on the bulletin board
who might have experience intra-day. Will let him answer if he wants to.


enclosed is a sample spread sheet from Sweeney's book:

a) Long MAE example

Row        A          B          C         D          E
1      Date       Open    High     Low     Close
2    11/6/90    28.93   29.62   28.70   29.51
3    11/7/90    29.40   30.95   29.30   30.95
4    11/8/90    31.32   32.35   30.82   32.02
5    11/9/90    31.50   31.97   30.42   30.59
6    11/12/90  29.32   29.53   29.03   29.31

Note: To avoid carry over I split the spreadsheet

Row       G            H            I
             Entry      Profit
1           Price     /Loss     MAE
2          (blank)   (blank)   (blank)
3          -30.95   False      False
4          -30.95   False       0.13
5          -30.95   False       0.53
6                   0    -1.64       1.92

So as you can see it is calculated everyday and produces "day in trade"
data.

The MAE and MFE calculations of the trade, sorts the trades into MAE "bins",
MFE "bins", MAE days in  trade and MFE days in trade etc. MAE deals with
getting out. MFE deals with staying in.

These are the distance parameters or calculations of the researched "proven
correct" statement.

Lets say that I know by my research that on Day 3, 65% of MFE trades in this
tradeable will meet or have exceeded $XX. Then I want to have a "proven
correct" statement of ... if the trade reaches $XX be the close of Day 3
then it will be "proven correct".

I will dump the trade if it doesn't reach my criteria, because it has not
been proven correct by the market. If my entry set-up has been "low-risk",
then the trade may be a wash at breakeven or at a small profit.

To continue the trade, it needs to be "proven correct" by the market. The
add positions also need to have a "proven correct" statements, i.e., at Day
10 and Day 16 for example.

This is a pro-active stance in the market for me rather than a reactive
stance. I assume that the market can go in many different ways, including
trample right over top of me. I only want to continue the trade if my
criteria, my risk, is met. Otherwise, I take my cash and stand aside.

To develop the time aspect, I have to take the MAE data and resort it (see
Ruggiero's and Stridsman's articles for more sophisticated and detailed
explanations):

Days in trade    % of trades with             Average
                            positive MinFE                MinFE
etc.

          1                        0%                               00
          2                      25%                           +.15
          3                      60%                           +.20
       etc.


In this way I can begin to develop the time aspect of trades and trade
management indicators.

MAE has a full range of stop planning. Emergency stops are important, as are
the use of options if I have to trade my way out of an event day gap.
"Getting out" is rarely planned for.

So, for me the database of closed trades, real or computer generated is the
source of knowledge and psychological insight, as others have spoken about.

Best wishes

Walter