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Just a comment - Many times when I cut off losing trades based on the MAE
idea the system I am testing just re-enters again and I wind up with two
small losses instead of one bigger one and a lower winning percentage. I
guess this is because I am currently working on systems that buy dips and sell
rallies. Probably wouldn't be a problem in a conventional trend following
system.
Chuck
In a message dated 2/5/99 5:27:32 PM Pacific Standard Time, hw@xxxxxxxxxxxxxx
writes:
<< 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.
>
When testing systems I start with no stops, and plot frequency
distributions of both Maximum Adverse Excursions and Maximum Profitable
Excursions.
Eyeballing these gives me a good starting point for defining initial and
breakeven stops, and profit targets.
Hugh.
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