Tuesday, September 8, 2009

MAE & Me- Using Data To Hone An Edge.

S0 after much struggle, it seems there could be light at the end of this particularly dark tunnel.

I've been trying to do something that I believe Know I can do. I just need to figure out the, umm, technicalities (ie how to do it...lol).

The chart shown demonstrates what I've always thought I could do but never had the conviction (or is that the data...?) to do. Even with a Sim account. This experiment came about by my study of the last 100 or so trades.

It quickly became obvious that my entries were so accurate, my Maximum Adverse Exposure, MAE, so small- 90+ % of winning trades never going into the red before showing a profit- that I had an untapped resource which could hone, if not stand alone as, my edge. What I was looking for was hidden in randomness- stops that were too wide to harness the strength I have at pin pointing short market sprints from fairly accurate entries...

Another obstacle is the tendency to watch dollar amounts rather than return on risk. If further along the trading path, you might watch return on risk but artificially cap it rather take profits at logical points. I suffered from this in particular and am still working on it. Eg I'd take half off at a predetermined R/dollar amount because I "couldn't risk giving back so much"- whatever that means!

The above problems of "giving room" with stops for such trades, watching where you are in a trade rather than where the market is in a move, result in no edge (gambling!). Fixing the risk will also leave less to chance (but will aggrevate any tendencies to watch dollar amount rather than the chart)


Anonymous said...

I only popped by because I thought, even from this distance, I heard the sound of a penny dropping :-)

Nice work, if I'm allowed to be, err, nice.

James Edwards-Marche said...


Thanks for the introduction to MAE (along with the info on record-keeping in general). Not sure how I missed the concept of MAE...it seems like an obvious piece of info to want to know!

Guess my teacher was right ;)