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You should get the book by John Sweeney on MAE and MFE. The basic idea with
Max. Adverse Excursion is to measure how far a position went against you
before it became a winning trade. If you plot all of these values for
winnings trades, most will likely cluster in a certain area, and a few may
be rather extreme. So the idea is to set a money management stop just below
the clustering area. This way you will get most of the winners without
having to take extreme heat for those few trades that went seriously against
you before turning around. MFE does just the opposite with losing trades.
Hope this helps.
Neil
-----Original Message-----
From: Sudarshan Sukhani [mailto:ssukhani@xxxxxxxxxxxxxxxxxxxx]
Sent: Thursday, February 11, 1999 12:48 AM
To: Code List; Omega-List
Subject: CL_MAE and Money Management Stops
Is there a difference between Maximum Adverse Excursion and Money
Management Stops used by TS ? Both tell us the point at which we should
be stopped out. Any ideas will be appreciated.
Sudarshan Sukhani
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