Money Management  |  APR 2006

The Average Peak Excursion by Chris Young

Stocks & Commodities V. 24:4 (42-46): The Average Peak Excursion by Chris Young With a multitude of stocks to choose from, how do you know which ones are the best to trade, and how do you determine the best time frame to trade them? As traders, your objective is to maximize your rate of return while minimizing risk. Just to make sure it’s clear what I’m writing about, let me define my terms. “Maximize” means that there are choices, approaches, and systems that give more positive results than others. “Rate” means that you are interested in the change per unit time — although rather obvious, we tend to focus too often on change rather than change per unit time. “Return” means that you want more back than what you put in. “Risk” points to the understanding that no system is perfect and choices must be made to preserve trading capital. That clarified, average peak excursion (APE) is a tool for characterizing a stock’s tendency relative to the terms defined. Using APE, you can: • Select stocks that tend to yield higher-trading rates of returns than other stocks • Select stocks for a higher relative reward compared with risk • Determine the best trading time frame to maximize the rate of return for a given stock.

by Chris Young