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I have received many questions about MAE, MFE, and MAR. So I decided to
post a response to the entire list.
<<<<<<<<<<<
>
> Maximum Adverse Excursion
> Minimum Favorable Excursion
> Maximum Retracement
That sounds like you are using RinaSystem. If it's the case, what is
your opinion about? Can you use with non TS generated trade reports as
well?
Else, I believe as well that much can be learned from looked
at these numbers...
Gwenn
>>>>>>>>>>>>
I don't use RinaSystem. I use Trade Station and develop my own systems.
Perry Kaufman (Smarter Trading) and John Sweeney (Campaign Trading), both
stress that any trading system has "natural" adverse moves when you enter
them. This is especially true of breakout systems. To maximize profits,
the initial stop must be below this point.
I use this in the evaluation of my systems to see how much "pain" I might
have to endure. If it is too much, I don't use it.
This is a much better approach that arbitrarily deciding on $xxxx, or
yyyy%, which have nothing to do with the way the market moves.
For a very complete review of the 1st 2, see John Sweeney's book Campaign
Trading.
Basically, if you plot these and do a statistical analysis of wins vs
loses, you will see certain clusters and cutoff points.
Simply, MAE is how far a winning trade will move against you after you have
entered a trade.
MFE is how far a winning trade will generally move in your favor.
MAR is average retracements from new highs during a trade.
Max Retracement is something his book does not cover, but it is along the
same lines as MAE. I use MAE to set initial stops and MAR to set trailing
stops.
John also wrote several articles on the subject in TASC.
I hope this is of benefit to all.
Regards,
Paul Weston
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