Below is an attached screenshot of a scatter plot of a long position Percentage Return of a Asset Security on the Y-axis, and the Maximum Adverse Excursion (MAE) Percentage on the X-axis. Green dots are winning trades, red dots are losing trades. While looking and analyzing the scatter plot to see where it might be good to place the stop loss, it seems this might not be a good use case of using the Maximum Adverse Excurusion (MAE), because it seems there are about the same amount of winning trades or more (green dots) where there groups of loosing trades (red dots) are. Not exactly , but visually it seems almost evenly distributed or more heavy on the green dots (winning trades). In other words, there is not an area on the plot where the red dots (losing trades)out number heavily on one side than compared to the green dots (winning trades). Because of this, would trying to use the Maximum Adverse Excursion (MAE) be not useful at all to find a good Stop Loss Level in this Example ? enter image description here

  • $\begingroup$ IMO this example illustrates that Stop Losses often do not add much value. They cut off what would have been winning trades as well as losing trades. They can protect against disastrous losses (which is useful) but they (usually, in my experience) do not improve expected outcomes. $\endgroup$
    – noob2
    Jul 29 at 20:41
  • $\begingroup$ @noob2 , The scatter plot above displays a 60 % win rate. The Chart above might not seem useful in using MAE to spot a Stop Loss area. Thats an interesting insight i also heard. If you don't use Stop Losses, what methods do you use in replace of a Stop Loss to cut risk ? $\endgroup$
    – Calculate
    Jul 30 at 16:30

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