Extended report of testing results - added MFE-Profit Correlation, MAE-Profit Correlation and MFE-Profits and MAE-Profits distribution graphs.
![Added MFE-Profit Correlation, MAE-Profit Correlation and MFE-Profits and MAE-Profits distribution graphs]( "Added MFE-Profit Correlation, MAE-Profit Correlation and MFE-Profits and MAE-Profits distribution graphs")
Maximum Favorable Excursion (MFE) - is the maximum potential profit reached while holding a position.
MFE-Profit Correlation - a correlation between the position returns and MFE. Each trade had its maximal profit and maximal loss between opening and closing. MFE shows profit in the favorable excursion of the price. Each trade is corresponded with its return and with two parameters - MFE and MAE. Thus, we can draw each trade on a plane where MFE is plotted along the Х-axis, the return is plotted along the Y-axis. The closer is the return to the MFE, the more complete was the favorable excursion of the price was used. The straight on the graph shows approximation by function Profit=A*MFE+B. The Correlation(Profits,MFE) allows to estimate relation between the profits/losses and the MFE. The closer to 1 is this value, the better will the trades fit into the approximation straight. The closer to zero it is, the less considerable is this relation. MFE characterizes the ability to realize potential profit.
Graph of MFE-Profits Distribution - points plotted on the graph MAE (X-axis) - Profits (Y-axis) indicate positions. Values of both axes are given in the deposit currency. Thus, for each transaction we see not only the acquired profit value including swaps along the Y-axis, but also maximally possible profit during the
position lifetime. It allows us to estimate the quality of protection of the paper (unrealized) profit. Though the distribution of points along the chart gives a satisfactory view of the trade system, a linear regression, which is a least squares approximation, is given for an objective assessment. Ideally, the line should make with the X-axis an angle of 45 degree.
Maximum Adverse Excursion (MAE) is the maximum potential loss reached while holding a position.
MAE-Profit Correlation - a correlation between the position results and MAE. MAE - Maximum Adverse Excursion. Each trade reached its maximal profit and maximal loss between opening and closing. MAE shows the loss during the adverse excursion of the price. Each trade is corresponded with its return and with two parameters - MFE and MAE. Thus, we can plot each trade on a plane where MAE is plotted along the Х-axis, the return is plotted along the Y-axis. The closer is the return to the MAE, the more complete was the protection against the adverse excursion of the price. The straight on the graph shows approximation by function Profit=A*MAE+B. The Correlation(Profits,MAE) allows to estimate relation between the profits/losses and the MAE. The closer to 1 is this value, the better will the trades fit into the approximation straight. The closer to zero it is, the less considerable is this relation. MAE characterizes the drawdown obtained within the position lifetime and characterizes the use of protective Stop Loss best of all.
Graph of MAE-Profits Distribution - Points plotted on the graph MAE (X-axis) - Profits (Y-axis) indicate positions. Values of both axes are given in the deposit currency. Thus, for each transaction we see not only the acquired profit value including swaps along the Y-axis, but also the maximal drawdown within the position lifetime. It allows us to estimate the transaction according to drawdown waiting out. Though the distribution of points along the chart gives a satisfactory view of the trade system, a linear regression, which is a least squares approximation, is given for an objective assessment. The less trades have negative values X (MAE), the better. It also allows making a decision based on the graphical analysis about maximally accepted losses, after which the possibility of taking profit is very small (if the analysis is carried out on the same currency pair and in points).
