Are wizards really worth their fees? For example, we could use it to quantify the forex online system trading day tra gained from a donchian channel breakout entry signal. The concept The e-ratio quantifies the edge by calculating the overall amount trades go in your favor versus the overall amount trades go against you.
Take all the trades generated by the entry signal. Close each trade after a given duration of n days. This gives you the e-ratio for a trade duration of n days. Maximum Favorable Excursion and the Maximum Adverse Excursion. MAE is calculated between the entry price and the lowest price during the trade. MFE is calculated between the entry price and the highest price during the trade.
Note that both values are positive. The Average True Range is a good measure of volatility. In many systems it is also used to drive the position sizing, making it really relevant. Divide all MAE and MFE values by the ATR calculated at the beginning of the trade. In this example we use the same period for the ATR and the Donchian Channel. This gives you comparable values across all markets and conditions.