Measuring Trading Insights: Lesson 101 for Data-Driven Investment

Be better than a dart-throwing chimpanzee: understand MFE, MAE and Brier score.

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Agonizing over the time to buy and time to sell? Have a decent investing idea but not sure if it can outperform the simple moving average strategy? This article shows you show to use a simple framework to benchmark and identify superior strategy in terms of risk and reward ratio, paving your first step toward steady profitability.
UPDATED 1221 DAYS AGO

Who should care?
A random walk down Wall Street often ends up being a miserable exit of your investment? You know you have the right intuition but there are too many information floating around and too many investing strategies affecting your decision? Are you wondering whether there is a way to find order in chaotic information on the internet? We want to provide you with an elegantly simple method of measuring the strategy.
Why do you need to learn this method, you may ask. Why not take the existing performance metric provided by financial institution? Because they don't provide the downright insight to give you the confident to execute. The simpler the insight, the easier for you to take a confident step forward. It is not THE ONLY way to measure performance. It is, however, the most insightful way to validate any strategy.

Why is this article valuable?
The framework is valuable because it is quick and effective way. We will show you how to get free financial data with a few lines of code. Consider it as an introduction to data-driven finance if you will, since investing without the leverage of the rich tool sets out there is like walking down the Wall street naked.

What is included?
We will showcase a benchmarking framework using Maxminum Favorable Excursion (MFE) and Maximum Adversarial Excursion (MAE), two simple but extremely useful metric in finance. The framework can be applied almost everywhere: be it a stock, an ETF, or even a real estate investment.

Basic Idea of MFE MAE

 

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Why should you pay for an article where information can be found via google? Because overwhelming information is as good as no information. Articles that has the possibility of being a native advertisement gives you no confidence. Paying is a way of voicing that fact that people are fed up with the Ads and have lost trust in free articles. Paying allows us to provide better support and force us to take the responsibility, making the ecosystem more sustainable.

About the author

Insight5
We are two philosophers, one who dedicated himself in trading and one who dedicated himself in Information Theory after graduating from college. We believe the current digital media is broken and free content often ends up being more costly in numerous possible ways. Large publishing companies find themselves in a tough situation to monetize and have become ruthless in advertisements impression and often resort to problematic native advertisements. We have lost our trust with large publisher, and we believe paid-per-unlimited-view content that comes with support is the right path forward.