Maximum Adverse Excursion
Click to view my Maximum Adverse Excursion video.
The Maximum Adverse Excursion or MAE is a measure of how far a trade went against you. Read this previous post for a definition. BackTesting Reports measures MAE across thousands of trades, allowing you to use it as a metric to assess and compare trading strategies.
Of course the idea is to pick a strategy with a low Maximum Adverse Excursion. You can also reduce the MAE (and risk) of a strategy by using a stop loss.
October 24th, 2009 Filed under Strategy Development
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A measure that takes the MAE (and MFE) even further is the edge-ratio (or e-ratio).
It allows you to measure performance impact of independent components of a system and understand if they provide you with an edge.
I find it very useful – you can learn more about it there: http://bit.ly/2UYzkG
There is also free code for its implementation in AmiBroker and TradersStudio on these pages: http://bit.ly/4rDelL and http://bit.ly/23Lbku