MFE and MAE describe how far a trade moved in your favour and against you while it was open. They add information that the final result cannot show and can be especially useful when reviewing stops, targets and management rules.
What each metric means
- MFE (Maximum Favorable Excursion): the greatest favourable move reached during the trade.
- MAE (Maximum Adverse Excursion): the greatest adverse move experienced before exit.
They can be expressed in money, points, percentages or, where possible, R-multiples.
MFE and exit quality
If a trade reaches +3R MFE and repeatedly finishes at +0.5R, the exit rule may deserve review. This does not automatically mean you should capture the maximum; MFE only shows what became available before the trade closed.
MAE and stop placement
Comparing MAE on winning trades can help investigate whether a normal stop is too wide or too tight. If many winners never move beyond -0.3R against you, a -1.5R stop may allow more room than needed, but any change should be tested on a sufficient sample.
Cross MFE/MAE with context
Analyse them by strategy, market, timeframe and exit type. A reversal strategy may have a very different excursion profile from a momentum strategy.
Do not optimize only with hindsight
Choosing the perfect historical stop or target from MFE/MAE can create overfitting. Use the data to form hypotheses and test them on new trades or independent backtests.