MAE and MFE: How Far Your Trades Go Against You and For You

Your P&L shows where a trade ended. It does not show the path it took. Two measures, popularized by John Sweeney, fill that gap: MAE, the maximum adverse excursion, and MFE, the maximum favorable excursion.

Definitions

• MAE: the largest unrealized loss during the trade. How far did price move against you before the trade ended?
• MFE: the largest unrealized profit during the trade. How far did price move in your favor at its best?

Both are usually measured from your entry price, in dollars, points or R.

Example: you buy at $50 with a stop at $48. The stock dips to $48.80, rallies to $54, and you exit at $52.

• MAE = $1.20 (0.6R)
• MFE = $4.00 (2R)
• Result = $2.00 (1R)

You captured half of the available move.

What MAE tells you

Look at the MAE of your winning trades. If almost no winners went more than 0.5R against you, a stop at 1R may be wider than you need. If many winners went 0.9R against you before working, your stop is right at the edge of normal noise, and a slightly wider stop might save trades.

Look at the MAE of your losing trades. If many losers went far beyond 1R before you exited, you are not honoring your stops. See stop-loss placement.

What MFE tells you

Look at the MFE of your winners. If they often reached 2R or 3R but you exited around 1R, you are cutting winners early. A target or trailing stop may help.

Look at the MFE of your losers. If many losing trades were up 1R at some point before reversing to a full loss, consider moving your stop to break-even after +1R, or taking partial profit there. See scaling in and out.

Efficiency

Some traders track exit efficiency: the result divided by MFE. Capturing 50% to 70% of the favorable move on winners is often considered good for discretionary traders. Very low efficiency points to exit problems.

Getting the data

MAE and MFE require price data during each trade, which is hard to collect by hand. Journals that fetch intraday prices can compute them automatically.

In TradeThink

Each trade's price chart shows the bars between entry and exit with your executions marked, so you can see the path of every trade. Review your largest winners and losers this way during your weekly review.