What Are MAE and MFE? The Two Numbers Your Entry and Exit Hide

A trade is usually summarised by two numbers, the entry and the exit, and their difference is the result. But a trade is a path, not two points, and the path contains information the endpoints throw away. Maximum adverse excursion and maximum favorable excursion are the two numbers that describe it.

The definitions

Maximum adverse excursion, MAE, is the largest unrealised loss a position reached while it was open, the most it went against you before it closed. Maximum favorable excursion, MFE, is the largest unrealised gain it reached, the most it ever offered before you exited.

Consider a trade that closes for a gain of 20. On its own that is a single tidy number. The same trade might have first fallen to minus 40, recovered, run all the way to plus 90, and then given most of it back to the plus 20 you booked. Identical entry, identical exit, and yet the experience and the lessons are entirely different from a trade that went straight to plus 20 without ever threatening you. MAE and MFE recover that hidden story.

What MAE tells you

MAE measures the heat you actually take on the way to your results, and reading it across many trades is revealing in a way no single stop-loss decision is. If your stop sits far beyond the point your winning trades typically dip to, you may be risking more capital per trade than those trades ever needed. If your stop sits inside the range your trades normally breathe within, you may be getting stopped out of positions that would have resolved in your favour. Importantly, the data does not tell you where the stop belongs, that is a judgement about your own risk and strategy. What it tells you is factual and usually surprising: the size of the gap between where you placed your stop and where your trades actually travelled.

What MFE tells you

MFE measures what you leave on the table. If your trades routinely reach plus 90 of open profit and you consistently book plus 20, that is not automatically a mistake, disciplined exits exist for good reasons, but it is a fact about your exits that is far better seen than assumed. The distribution of your MFE against your actual exits shows whether you are capturing what your trades offer or systematically leaving most of it behind.

Why this matters for trailing drawdown

MAE and MFE are also the reason certain prop-account rules bite harder than their headline size suggests. An intraday trailing drawdown is charged against the peak a trade touches, its MFE, not the price you eventually exit at. If your winners routinely run up large open profits and then give a chunk back before you close, your effective drawdown under such a rule is larger than your closed results imply, because the rule taxes the peak you reached rather than the profit you kept. A trader whose style is to let winners breathe is exactly the trader that rule penalises, and MFE is where that cost becomes visible.

The point

Entry and exit are decisions. MAE and MFE are the evidence about those decisions, drawn from what the trade actually did while you held it rather than from the two prices you chose to record. Measuring them across your own history turns vague intuitions about stops and targets into facts about your trades, which is the kind of measurement our case study is built around.