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:What the devil are MAE and MFE ?? Please.
MAE: Maximum Adverse Excursion.
MFE: Maximum Favorable Excursion.
John Sweeney of TASC (Technical Analysis of Stocks and Commodities) wrote a
book called "Campaign Trading" where he expounded on the subject of MAEs and
MFEs. Basicly, the idea of MAE is how far away the market moves against your
entry point before it either turns around in your favor or it will move even
more substantially away from your entry point and never gives you a chance
to breakeven . At that point, if it does not turn around in your favor,
sometimes you're better off doing a stop and reversal. MFEs are how far away
from your entry points a trade will move in your favor and then reverse
itself, leaving you with substantially less profits. You can use this point
as your profit target.
I'd highly recommend you read his book. And also get Portfolio Maximizer
(you'll need TS 4.0 build 21 for it to work). With the PM, you can do a more
substantial analysis of your trading system(s). One of the characteristics
of my trading system is what I call a point of no return. That's the point
where I know that the trade will not reverse against me and leave me with a
loss or little or no profit. At that point, I can add to my original
position and take more out of the market than if I had let the original
trade stand alone. If I hadn't gotten the PM , I'd would never have found
this at all or even thought or suspect that this can be done. Once it hits
my profit target (MFEs), it's time to take the money and run.
One way I use MAEs is this: I know that if a trade drops more than 13 points
away from me, it'll never be profitable. So, if I'm long and the market
drops 10 points away from me, I'd add to my orignal position . If it drops
13 from my original entry and 3 from my secondary entry, I'd get out of
both. However, there are numerous times where the market will turn around
and I'd take an extra 10 points off the table that really wasn;t there.
Overall, this tactic adds about 40% to my bottom line that wasn't there
before.
I'm talking about bonds, not S&Ps. Imagine having a MAE of 13 points in the
S&P at the old contract values of $500 a point. I'd have a heart attack!!
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