MFE and MAE in Trading: Improve Stops and Exits

What MFE and MAE mean

Maximum Favourable Excursion (MFE) is the most favourable unrealised movement during a trade. Maximum Adverse Excursion (MAE) is the most unfavourable unrealised movement. The exact calculation depends on direction, price path, and whether the data is tick, candle or mark based.

Illustrative chart example

Plot entry at zero, MAE below zero and MFE above zero. This illustrative table is not a TradeLore screenshot or historical result.

Questions MFE and MAE can support

• Stop-loss placement: did stopped trades exceed a common adverse range?
• Premature exits: did many exits occur before a larger favourable move?
• Target placement: where did favourable movement commonly stall?
• Trade management: did partial exits change the distribution?

Scaling in and out makes attribution harder

When quantity changes, define whether MFE and MAE are measured per leg, per position or per combined trade. Candle highs and lows can overstate the executable path. Use the same convention across the sample and keep the raw executions available for inspection.

Choose a measurement convention

For a long trade, MFE can be measured as the highest observed price minus entry and MAE as the lowest observed price minus entry. For a short trade, the favourable and adverse directions reverse. Decide whether the observation uses candle high/low, tick data, mark price or executable bid/ask data, then keep that convention consistent.

If the source only contains completed fills and no price path, the journal cannot reconstruct exact MFE or MAE without additional chart or market data. Mark the field as unavailable rather than creating a value from the exit alone.

Read the chart together with the table

For each trade, plot entry at zero, MAE below zero and MFE above zero, then mark the exit. A cluster of stopped trades with similar MAE may suggest a question about stop placement. A cluster of exits far below MFE may suggest a question about management. Neither pattern proves that moving a stop or target would have improved results.

Use the trade chart to inspect the path: gap, spread, volatility, partial exit and re-entry can make a single number misleading. Keep the raw data and the review note together.

Scaling in and out example

For this structure, calculate leg-level excursions and a combined-position excursion only if the convention is documented. Do not compare a scaled trade with a single-entry trade without explaining the difference.