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Metrics

MAE and MFE: how far a trade ran before it closed

What are MAE and MFE, and what do they tell me that my P&L does not?

A closed trade reports one number: what it made or lost. MAE and MFE report the two extremes it passed through on the way — the furthest price moved against the position (adverse) and the furthest it moved in favour (favourable) while it was open.

In short

P&L is the endpoint. Excursions are the path. Two trades that both closed at break-even are different trades if one never moved and the other was 3R up before it came back.

What each one measures

Maximum adverse excursion is the worst unrealised loss the position reached before it closed, measured from entry. Maximum favourable excursion is the best unrealised gain it reached. Both are usually expressed in R, so they can be compared across trades of different sizes.

A winner has an MAE too: it is how far underwater the trade went before it worked. A loser has an MFE: how far it was ahead before it did not.

The questions only excursions can answer

These are the questions a closed-P&L column cannot address, because the information is not in it:

  • How much of what a book reaches is actually captured — the gap between average MFE and average result.
  • Whether stops are being placed inside the noise: winners whose MAE is consistently close to the stop distance are winners that nearly did not happen.
  • Whether losers were ever profitable, and by how much, which is a different fact from how they ended.
  • How much room a trade needed. A book whose winners have small MAEs is behaving differently from one whose winners routinely go 1R against first.

Why they have to be measured, not remembered

MAE and MFE cannot be reconstructed from the fills. They require the price history over the exact window the position was open, sampled finely enough to catch the extremes, which is why a journal has to fetch and store them per trade rather than derive them on read.

They are also sensitive to the data used. An excursion computed from daily bars and one computed from one-minute bars are different numbers for the same trade, and a low-resolution figure understates both extremes.

Reading them honestly

An excursion is a description of a trade that already happened. That average MFE was not available to take — knowing the high of a position after the fact is not the same as being able to exit there, and the difference between the two is not a mistake the numbers can measure.

Questions

Is MAE the same as my stop distance?
No. The stop is where the trade was set to exit; MAE is how far it actually went against the position, which can be less than the stop on a winner and more than it on a gap. Comparing the two across a book is the point of storing both.
In R or in dollars?
R, in most cases, for the same reason results are expressed in R: excursions from trades of different sizes are not comparable in currency. A journal that stores the raw prices can show either.
Do excursions apply to a scaled position?
Yes, and they are measured from the average entry against the window the position was open. A position built in pieces has one excursion pair over its whole life, not one per fill.

Keep the record it all comes from

These measurements need a complete book of trades behind them. A free account gives you somewhere to keep one.

MAE and MFE Explained | Ledger of Alpha