How to use MAE and MFE for my Level Strategy

[SimpleMeLike]

Hello,

Really appreciating the help here to make sure I am the right path.

I have a system based on support and resistance I am collecting data for. Basically, if price gets above resistance and retracement, i go long. Vice versa for short below support.

I understand that MAE means the max loss while trade was open. And MFE means the max profit while trade was open. Thus far, I have not been calculating this per trade during my 2 months of backtesting. I have about 125 trades and I just now realize to calculate this. Now I want to start calculating so I can analyze my entry stop loss efficiently per trade.

I am using a 3pt stop loss per trade (i just used this based on experience of the charts I study for months). Entry 1 pt from support or resistance.

A few questions I am confused about.

1. If the trade stop out, do I still calculate the MAE for that trade as -3? And if the trade goes +1pt before stop out, is the MFE for that trade +1?

2. Should I calculate if trade went further against (after stopping me out at -3) me and then turned in my favor? I believe this metric will tell me if need to increase my stop loss beyond -3.

3. How does MAE and MFE help me for my entry or stop loss placement?

4. MAE means max loss while trade was "open". Does this mean until my -3pt stop is hit and trade is closed? Or do I assume the trade stays open til market close? Same for MFE?

I will do my own research on backtesting to answer these questions and hopefully the book I buy help with proper back testing data collection.

Thank you,

 

[KDASFTG]

Greeting SML,
Find enclosed pages 7 through 11 of the book Maximum Favorable Excursion by John Sweeney (Rip), he was a good man and perceptive Trader, and this should answer your questions. The book is currently available on Amazon "Used Books" for $13,...enjoy the work you've got ahead.
KDASFTG

 

[speedo]

You have to discover what works for you but I will share how I look at them. I use a stop based on recent S/R with a set limit which may result in either a stop or a limit entry based on how far from the stop the trade triggers. If price goes against me beyond that, it is a loss and I don't care how far past it goes. The trade may offer a re-entry or it may not, that's trading. I record MFE to determine sweet spots as I like to use targets, It makes things simple and I like simple. There is nothing special about how I trade but it works for me. Good luck in your own efforts.

 

[SimpleMeLike]

Greeting SML,
Find enclosed pages 7 through 11 of the book Maximum Favorable Excursion by John Sweeney (Rip), he was a good man and perceptive Trader, and this should answer your questions. The book is currently available on Amazon "Used Books" for $13,...enjoy the work you've got ahead.
KDASFTG

KDASFTG,

Thank you so much. Very appreciative.

 

[SimpleMeLike]

he trade may offer a re-entry or it may not, that's trading. I record MFE to determine sweet spots as I like to use targets,

Thanks speedo,

Do you use record the MFE after you close the trade as well? To see potential profit you could have missed cause of early exit.

 

[speedo]

Thanks speedo,

Do you use record the MFE after you close the trade as well? To see potential profit you could have missed cause of early exit.

Yes as it is a function of my targets but I don't fret about "lost" ticks, I simply try and get a piece of the move.

 

[SimpleMeLike]

Yes as it is a function of my targets but I don't fret about "lost" ticks, I simply try and get a piece of the move.

Yes, for data collection per trade, I assume you document the potential profit target of the trade. Yes, I understand taking a certain amount of profit ticks.

 

[SimpleMeLike]

One of my biggest weakness I belive is improper data collection when backtesting, especially when done manually.

For instance, MAE can help with stop loss prediction, but what about entry. During testing and data collection only one entry can be used.

Should multiple entries per trade be tested as well to determine the what if factor? MAE and MFE will differ if the entry changes.

Going to bed, too much thinking

Thanks

 

[Handle123]

MAE and MFE I believe should only be used on winning trades, you start off by not using any stops to see distance price when against position, then start increments put in stops to see how well entries are, if you using too wide of stops cause system showing losses, find the "mean" of how far distance of stop to show profitable trade, and place stops beyond this amount, it can be different for longs/shorts, then see if system making a profit. You do the same for MFE. The bigger the sample size the better and never less than 3,000 is my choice. It better to use tick data and not one minute charts, much can happen in one minute.

People don't realize to play with the big boys in day trading, and if you choosing a system that targets profits, it has gotten very much technical and discipline must be in stone, where as going for much larger profits, where you get in is not as important nor is time of being in a trade and much less technical. The more folks what to go for smaller profits, the more money you going to have to have for data, programmable software and knowledge to program. Better software's you can do optimizing and where on each area is profitable as well.

I really don't understand other than lack of funds, why people go to day trading to learn to make money, longer term/hedged is slower and overall you learn how to do that first until your knowledge is much more than knowing what to do in micro second. More money make in longer term and options then spreads then intraday.

Spread trading in futures the price action at times are fast and slow, margins often times smaller than outright, you can day trade them or stay in for approx. a month, some are seasonal with using signals and not some "special" date. Guys in the pits of old often made their money in just spreads. What are least written books? Spread trading, those who know never write books on spread trading.

 

[SimpleMeLike]

you start off by not using any stops to see distance price when against position, then start increments put in stops to see how well entries are, if you using too wide of

Thanks Handle123,

See the attchment for example. I will start a new thread of my roadblocks of my strategy I am considering and where I am stuck at.