The “e-ratio” system measurement
Always on the look-out for interesting system measurements, I stumbled across the “e-ratio,” described here. The concept is to graph your normalized (volatility-adjusted) MFE (maximum favorable excursion) to MAE (maximum adverse excursion) ratio for different n (time-steps) since a trade was taken. A value above 1 allows you to identify a positive edge. It is most useful when making tweaks to a system, to help identify when a filter or signal adds ‘edge’ over all time-steps.
