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Re: Question About MAE/MFE?



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> I wrote a strategy once that did better setting targets and stops
> based on a multiple of a market noise measurement, than it did
> using MFE/MAE.  I personally preferred it because MFE and MAE are
> distributions measured over a history, and you don't know how they
> should be adjusted over time.  Market noise changes over time, so
> your strategy can adapt to different conditions.
> 
> There are several ways to measure noise.  Average True Range is one
> (which is what mine was based on).  Standard Deviation of price is
> another.

Yep, one should probably measure MFE/MAE relative to volatility (market
noise) to normalize them. But, once you normalize the size of your
trades to volatility, a simple TS optimization of stops and targets
(stop = X*volatility, target = Y*volatility) does essentially the same
thing without all the extra math of calculating MFE/MAE. TS, in effect,
does it for you when it optimzes the stops and targets.

-- 
  Dennis