MAE and MFE explained
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Maximum adverse excursion is how far a trade went against you before it closed. Maximum favourable excursion is how far it went in your favour. Compare them across your winners and losers to place stops and targets on evidence instead of habit.
What MAE tells you
Look at the MAE of your winning trades. If no winner ever went more than 0.6R against you but your stop sits at 1R, your stop is wider than it needs to be and every loss is oversized.
What MFE tells you
Look at the MFE of your losing trades. If losers routinely reach 1R in profit before reversing, you are giving back winners and a partial exit or a break-even stop would change your expectancy.
How to record them
For each trade, note the worst price it reached against you and the best price it reached in your favour, both before the exit. Expressing both in R rather than dollars makes trades comparable across sizes.
Turning the numbers into rules
Set the stop just beyond the MAE of most of your winners, and set the target inside the MFE that most of your winners actually reach. Then re-measure after another 50 trades.
Frequently asked
What does MAE stand for in trading?
Maximum adverse excursion: the largest unrealised loss a trade reached before it was closed.
What does MFE stand for?
Maximum favourable excursion: the largest unrealised profit a trade reached before it was closed.
Do I need special software for MAE and MFE?
No. You can record both manually per trade in your journal. The value comes from comparing them across a large enough sample.
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