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Message-ID: <36BBB48F.7E1C@xxxxxxx>
Date: Fri, 05 Feb 1999 21:18:39 -0600
From: "William Vedder, Jr" <bved01@xxxxxxx>
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To: Phil Lane <logical@xxxxxxxxxxxxx>
Subject: Re: Max Adverse Excursion
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Phil Lane wrote:
>
> Does this work for any of you? The idea seems to be that the trades drawing
> down beyond a certain point will generally turn out to be unsuccessful. But
> I find the trades with the most drawdown have about the same probability of
> working as do the smaller ones, and many times they lead to the biggest
> gains. MAE - A pipe dream? Probably depends on your system or something.
Phil,
I read the book. It definitely SOUNDS like a good idea; one worth testing. The key
point, and one that Sweeny makes clear, is that the system must be able to distinguish
between potentially profitable and likely unprofitable trades ie it must have some edge
to begin with. If the system can't do this, then a trade is just as likely to turn
around and be profitable once the MAE is hit as it is to result in further loss.
One question that I've given some thought to but haven't resolved is this; if I
generate a bunch of trades randomly and calculate MAEs, I'll come up with some number.
Certainly that number has no more validity than the method used to select the trades
(ie random). Therefore, how do you tell valid MAEs from the invalid?
Bill
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