MAE and MFE

Maximum adverse excursion (MAE) and maximum favourable excursion (MFE) measure what happened inside a trade while it was open. MAE is the furthest price moved against you; MFE is the furthest it moved in your favour. Popularised by John Sweeney in his book on the subject, they are among the most practical tools for improving stop placement and profit taking, because they are based on your own trades rather than general rules.

Definitions#

Both are best recorded in R multiples, where 1R is your initial risk, so trades of different sizes and markets can be compared.

What MAE tells you about stops#

Collect MAE for many trades and compare winners with losers:

• If winning trades rarely have MAE beyond 0.5R, while losers mostly reach the full 1R, your stops may be wider than needed. A tighter stop could cut losses without stopping out many winners.
• If many eventual winners first dip to 0.9R or more, your stops are about right or even tight, and tightening would turn winners into losers.

What MFE tells you about targets#

• If average MFE on winners is much larger than your average exit, you are taking profits too early. Consider trailing stops or partial exits. See Scaling Out and Partial Profits.
• If many losing trades had MFE of 1R or more before reversing to the stop, you may benefit from moving stops to breakeven earlier, or taking partial profits sooner. See Moving Your Stop: Breakeven and Trailing Stops.

Building an MAE/MFE log#

Add these columns to your Trading Journal:

1. Entry, initial stop, initial risk (1R).
2. Lowest price during the trade (for longs) and highest price.
3. MAE and MFE in R.
4. Final result in R.

Many platforms and journaling tools record excursions automatically from your fills and price data.

Using the data wisely#

• Sample size: wait for at least 30 to 50 trades of one setup before drawing conclusions.
• Change one thing at a time: adjust stops or targets, not both at once.
• Test before adopting: apply new rules on paper or small size first.
• Watch for regime changes: excursions differ between calm and volatile markets.

Common mistakes#

• Optimising stops to past data too precisely, which can fit noise. See Overfitting and Curve Fitting.
• Ignoring MFE on losing trades, which often reveals the biggest opportunity.
• Measuring in dollars instead of R, which makes trades hard to compare.

Frequently asked questions#

What is maximum adverse excursion?#

The largest move against your position while the trade was open, showing how much drawdown the trade experienced before closing.

What is maximum favourable excursion?#

The largest move in your favour while the trade was open, showing how much profit was available at the best point.

How do MAE and MFE improve trading?#

They show whether your stops are too wide or tight and whether you exit winners too early, based on your own trade history.

Next, learn how to manage your trading capital as a whole with Bankroll Management.