E-Ratio

[dcgrant08]

Hi, Ive been reading the Way of the Turtles by Curtis Faith (which i recommend btw) but I'm not entirely clear on the E-Ratio which is described in the book. This is partly because I do not understand all the terms (Maximum Favourable Excursion, Maximum Adverse Excursion, Average True Range, no. of signals etc.) but also how it can be applied in an entry strategy. Faith describes the E-Ratio in conjunction with the Donchian Trend System, a mid-term channel breakout whereby one buys when the price exceeds the 20-day high, assuming that when this happen the change will be dramatic. I suppose what I really want to understand is the terminology and therefore the calculation of the E-Ratio and how it can be applied to systems in general.

Any help appreciated but I hope my fellow beginner traders will also find something useful from this thread.

 

[zwoop]

All it does is that it checks if the favorable move is often bigger then the non favorable move. Then is uses ATR to filter out volatility so that you can compare different markets with the same formula.

 

[FrankP]

All it does is that it checks if the favorable move is often bigger then the non favorable move. Then is uses ATR to filter out volatility so that you can compare different markets with the same formula.

To what market it applies? Forex or others..or all?

 

[zwoop]

It do not care what market it is on, it only test a system but if you run the system on different market and on different stocks etc each will have a different ATR and that will make to results wrong. By eleminating the ATR you will be able to see how the system does in a pure form. Make the math manualy a few times on diffrent makets and you will get it.