Adverse Excursions, 07/26/07
Sometimes conditions occur outside the everyday parameters of trading systems. When that happens one can test post-event adverse excursions for clues to how a system may fare in coming days.
The post-event adverse excursion is the amount a position goes against the price and direction it was put on at prior to being closed out at a profit or loss.
For example, the average adverse excursion in the 5 days following a fifty(50) point decline in the SP futures is -3% (n=10) which means a multiday system with tighter stops might have trouble in that timeframe.
The goal of examining post-event adverse excursions is not to generate fear or fear-based action, but to provide a broader basis for better decision making under The Axiom of the Small Edge.