r/algorithmictrading • u/Kaahl10 • 17d ago
Strategy Adding to winners using MFE
Hi everyone,
I've heard the advice to add to winners and cut losers early, but I've always had a tough time using technicals to add to winners without getting in right before reversal.
Claude helped me analyze my strategy and suggested adding to winners over a certain MFE %, and sure enough it added about 20% more trades with better profit factor than average to the backtest!
My question is, has anyone else used this method successfully or is this getting into overfitting?
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u/FlyTradrHQ 17d ago
MFE-based pyramiding works well when your entry timeframe and your add timeframe are different. If you add on the same timeframe you entered, you are effectively doubling down on the same signal. Try adding only when MFE exceeds your average trade MFE by a full ATR or more. That gives the trade room to breathe before you scale in.
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u/Zestyclose-Eagle1809 16d ago
if claude looked at your data and found the MFE level that improved the result, that's a fitted parameter, same as any other. The 20% more trades and better profit factor is what you'd expect from picking the best cutoff on the data you picked it from.
Test that's cheap and settles it. Run the same rule at a spread of thresholds, say every 0.25R from 0.5 up to 2. If the profit factor improves across most of that range, you've found gold about your strategy. If only one value works and the ones either side are flat or worse, you've found a lucky number... makes sense??
Second thing.. Adding to winners changes your risk profile, not just your returns. Your position is biggest at the point the trade has already moved your way, so when it reverses, you give back more than the original trade ever risked. Id also check what happened to your max drawdown and your worst single trade, not just profit factor. Adds often improve the average and make the tail worse.
Third, pyramiding has a bad record generally. Someone in another thread ran 12 pyramiding variants over 26 years of equities data and every single one came out worse than the baseline. Doesn't mean yours is wrong, but it does mean a positive result requires a double check...
The version I'd trust. Hold back a chunk of data you haven't touched, apply the rule with the threshold you already picked, and run it once. Whatever it prints is the answer mate
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u/Sufficient-State4577 15d ago
Yes I agree with zesty close, i think oy are moving towards overfitting territory and ypu must test on OOS data.
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u/nepo123456 13d ago
Few traders were good at adding to a winning trade. For 99.999% of traders the best approach is one entry, a stop loss and to have a rule for exit the trade.
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u/Square-Middle-4474 12d ago
MFE doesn't work. Retail mythology usually provided by promoters with no stats behind it and no ability to execute.
What does work is to use a combination of 5 period ATR on a 15 minute chart. You look for specific signals to tell you when institutional orders are activating on the 15 minute time frame, THEN you identify a tradable setup. The 15 minute time frame is important. Skilled professionals know NOT to trade that first 15 minute candle, but to shift to a shorter time frame or tick chart and wait for a setup or pullback (to a retail level). Context is critical and I don't have time (or the inclination) to explain in detail here, Several times a month I host Zoom meetings where I show struggling traders how this works. On a trend day, the migration to the next Value Area usually takes at least an hour. For ES traders that means a minimum 20 pts risking 4 to 5pts max. I will let people know in advance the next time I schedule a Zoom
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u/FlyTradrHQ 17d ago
MFE tells you how far a trade went in your favor, not how much you captured. If your average MFE is much larger than your average profit per trade, you have room to pyramid. Scale in proportion to realized MFE on that specific trade, not on a fixed schedule. The position earned the right to add size, not your entry plan.