Measurement of Potential in Trading Strategy – Mae & Mfe Analysis

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For example, we could use it to quantify the edge gained from a forex mae mfe channel breakout entry signal. The e-ratio quantifies the edge by calculating the overall amount trades go in your favor versus forex mae mfe overall forex mae mfe trades go against you. The higher value the value of the e-ratio, the more trades move in your favor — giving you a good indication forex mae mfe the edge measured.

Take all the trades generated by the entry signal. Close each trade after a given duration of n days. Calculate the e-ratio based on data from all trades forex mae mfe detailed in 4 steps below. This gives you the e-ratio for a trade duration of n days. Repeat the operation for various values of n to chart the e-ratio curve as a function of the number n of days — as illustrated below: The e-ratio of the entry criteria is plotted above. The higher the value of the e-ratio, the better the edge.

In the instance above the day e-ratio is 1. Maximum Excursions are the maximum amount the price goes against you Adverse or in your favor Favorable forex mae mfe the trade. MAE is calculated between the entry price and the lowest price during the trade. MFE is calculated between the forex mae mfe price and the highest price during the trade. Note that both values are positive. To be able to compute the e-ratio across different markets, the Excursion values forex mae mfe be normalised to a common denominator — such as a unit of volatility.

The Average True Range is a good measure of volatility. In many systems it is also used to drive the position sizing, making it really relevant.

This gives you comparable values across all markets and conditions. Repeat the operation for the MFE values. The higher the number, the better, with any values above 1 implying a positive edge.

Plotting the e-ratio across different durations allows you to check the edge offered by the signal and what timeframe works best forex mae mfe the signal parameters. You can also combine e-ratios for different parts of a system to forex mae mfe how they impact each other. Another component of a trading system could be a trade filter, for example, trade with the main trend:. Only buy when the moving average forex mae mfe a higher timeframe is rising and below the price.

Only sell when the forex mae mfe average at a higher timeframe is declining and above the price The second e-ratio plotted is from a combined entry signal and trade filter.

You can see the improvement a filter logic makes! The e-ratio is one tool in the box of an automated trading system developer. It can quickly give you an overall feel for a component to include in the trading system. The e-ratio was calculated using TradersStudio and Forex mae mfe. The system tested was a Donchian Channel Breakout 17 days with 7 Futures markets.

The MA used for filtering was days. I will follow-up with a post containing the code used to calculate it. I just noticed in your blogroll the aggregate link to all you perfered blogs, excellent collection. Millward, Glad it helps. If you have any other blogs that you think might be of interest for the blogroll, please let me know. You pretty well have the algo side of blogs covered, its difficult to find good ones under this genre, but will do.

The concept is to graph your normalized volatility-adjusted MFE maximum favorable excursion to […]. Hi Jez, Could you clarify one point: Hi Jez, I am using the free trial version of Trading Blox and I am trying to test the edge of different entry signals. I am basically progressing from a random entry to dual MA, Donchian etc.

Is there a predefined Blox that already calculates and plots the e-ratio or do i need write the code from scratch. Or if u have already addressed e-ratio calculation in TB in a different article can u pls point me to it? And the implementations of the e-ratio calc in TB from forex mae mfe discussion above are available for download, but I believe you will forex mae mfe have access to it with the free version of TB ie they are in the Blox marketplace, which I think is only accessible for paid customers: Hello sir, I have came across ur blog to find any afl for auto trading for the amibroker for stock markets of india.

I will highly appreciate if u can make 1 of the auto trading system in which I can define my forex mae mfe to trade. Hi Kushal — thanks for the comment. Forex mae mfe, I do not use AmiBroker any more so the possibility of publishing other afl code is very remote. There is a large user base though with yahoo groups being very responsive and other collections of afl codes available fairly easily, so you might have more luck over there.

This would then be used to rank indicators rather than comparing the graphs? Agree its a blunt instrument, but perhaps it has a use in highlighting where to concentrate analysis, when faced forex mae mfe hundreds of indicators.

The trend is your friend! Others call it the e-Ratio. It consists of evaluating the relationship between the advantage offered a position in the market […]. Notify me of followup comments via e-mail.

Sy blog, Systematic Trading research and development, with a forex mae mfe of Trend Following. Past performance is not necessarily indicative of future results. Futures trading is complex and presents the risk of substantial losses; as such, it may not be suitable for all investors.

The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy.

The ideas expressed on this site are solely the opinions of the author. The author may or may not have a position in any financial instrument or strategy referenced above. Any action that you forex mae mfe as a result of information or analysis on this site is ultimately your sole responsibility. Sy blog — Au tomated Tra ding Sy stem.

Sy recommends CSI Data. The second e-ratio plotted is from a combined entry signal and trade filter. Thank U, Regards, Kushal. Free Updates By Email: Were the Turtles just lucky?

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Maximum Favorable Excursion is what was the maximum profit that the trade had before the trade closed, on line number 5 you see a trade that lost 2. Maximum Adverse Excursion is what was the maximum loss that the trade had before the trade closed, on line number 5 you see a trade that lost 2.

The MFE chart shows in red squares all trades that closed with a loss and in the green square all trades that closed with a profit, the left Y-axis has the total profit or loss of each trade. The X-axis shows the maximum profit that each trade had before it was closed. If you look the trade that has the red arrow, that trade lost about 1 point but was at one time actually making about 3.

Look at the trade that has the green arrow, that trade made about 3 points profit, but was at one time making 4 points profit MFE. Using the cross hair and clicking on the chart we will find that about 3. We will use this information later. Note that using the 13 ticks target all trades to the right of vertical cross hair line will now have a profit hit of 13 points. Note the box on the top left corner shows the total profit if the target is not used and the total profit if you use the target at that point.

The MAE chart shows in red squares all trades that closed with a loss and in the green square all trades that closed with a profit, the left Y-axis has the total profit or loss of each trade.

The X-axis shows the maximum loss that the trade had before it was closed. If you look the trade that has the red arrow, that trade lost about 2 points but was at one time actually losing about 11 points MAE profit. Look at the trade that has the green arrow, that trade made about 1 point profit but was at one time losing about 6 points MAE. Note that using the 24 ticks stop all trades to the right of vertical cross hair line will now have a stop hit of 24 points.

The high degree of leverage can work against you as well as for you. Before deciding to invest you should carefully consider your investment objectives, level of experience, and risk appetite. You should be aware of all the risks associated with trading, and seek advice from an independent financial advisor if you have any doubts.

Further, the Referring Broker and the FCM are not responsible for their availability, content, or delivery of services. We do not offer any advise and trade using our software is at your own risk.

Privacy Policy Contact Information. All names mentioned in this document are trademarks or registered trademarks of their respective owners. The example stated are for illustrative purpose only, and should not be viewed as advice or guarantee of performance.