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In the omega arhive (see below ) Craig (Nelson?) posted on Fri, 04 Oct
96 "My Favorite Stop Method" (see below).
Anyone got the code for the "MAE"?
>My main method of determining stop levels is to use Maximum Adverse
Excursion
>(MAE). By using this methodology I can get a typical trade "signature"
of
>my winners and see typically how much do I suffer before a trade turns
out to
>be a winner. I can then choose a percentile rank at which I am
comfortable
>with. Usually, I just choose the biggest loss that I sustained on a
trade
>before it turned around and became a winner, and then add one tick to
it. Also,
>I noticed that many of my losers become BIG losers when I use an
arbitrary
>stop/loss of say 2.5%, or whatever the literature tells you to use. I
>personally find this level to tight for me and my systems win enough of
the
>time, and the winners are 1.3-1.5 times the losers so that,
mathematically at
>least,I will not get ruined in the long run. This is the main reason I
don't
>adhere to the 2-2.5% loss principle.
>I just recently started to use a combination MAE/Indicator method for
getting me
>out of trades that most likely will not work out. I'm out if the price
hits my
>MAE or if the indicator gets triggered. I like this combination because
the
>Indicator tells me that price is not moving in the direction I had
expected and
>I'm out at the opening of the next day(Project A afternoon session,
that is) or
>I'm out at a loss that, althoug large, rarely occurs. The MAE limits my
absolute
>loss exposure and allows most of my trades to develop into either
winners or
>SMALL losers, most of the time. The MAE is very rarely hit and this
goes back
>to what Mr. Brickey had said about having your stops rarely hit by the
floor
>crowd and trading less like the "herd".
>This combination has kept historical drawdowns and average losers low.
>p.s.--for a more in depth discussion on MAE and it counterpart MFE
please
>refer to the Tushar Chande book, "The New Technical Trader".
>Best Regards,
>Craig
-----Original Message-----
From: Clint Chastain <flag@xxxxxxxxxxxxxxx>
To: Omega-list <omega-list@xxxxxxxxxx>
Date: Saturday, September 26, 1998 1:51 PM
Subject: System Exits
:I have observed over time that much trading discussion, here and
elsewhere,
:seems to focus on setups and entry signals. Very little discussion of
exits.
:Yet it seems to me that when to intentionally leave a trade (vs. being
:stopped out) is just as important as when to initiate the trade.
:
:Perhaps some of the more learned members of this list would care to
comment
:on this. For example, are there certain exit methodologies that are
more
:applicable to markets that tend to rise over time, such as the S&P? Are
:there exit methodologies that work better in markets that don't
necessarily
:rise over time, like bonds? Are there exit methodologies that work
better in
:the short term vs. the intermediate term or long term? And so on.
:
:All comments welcome.
:
:Clint
:
:) (http://www.intrepid.com/~gary/omega-list/1089.html
http://www.intrepid.com/~gary/omega-list/1095.html
http://www.intrepid.com/~gary/omega-list/1121.html
http://www.intrepid.com/~gary/omega-list/2481.html
http://www.intrepid.com/~gary/omega-list/2494.html
http://www.intrepid.com/~gary/omega-list/7089.html)
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