Maximum adverse excursion (MAE) is the furthest a trade moved against the entry price while it was open; maximum favorable excursion (MFE) is the furthest it moved in the trade's favor. Recorded for every trade and read across many trades, the pair shows whether stops sit where losing ideas fail and how much of each move the exits keep.
How it works
Both measures come from the price path between the entry and the exit, compared with the average entry price. For a long trade:
- MAE per share = average entry − lowest price while the trade was open.
- MFE per share = highest price while the trade was open − average entry.
For a short trade the two swap: MAE uses the highest price and MFE the lowest. Each can be stated three ways:
- Per share, in price units.
- In dollars, per share × the number of shares.
- In R, per share ÷ the initial risk per share (entry minus stop). This is the form that makes trades comparable: an MAE of 0.5R means the trade went halfway to its stop, whatever the stock's price or the position size. R multiples are explained in stop loss and position sizing.
The idea was popularised in the 1990s by John Sweeney, whose book Maximum Adverse Excursion (Wiley, 1997) applied it to setting stops from the trader's own history rather than from a fixed rule. MFE is the natural counterpart for judging exits.
Worked example (illustrative numbers)
A long trade: 100 shares bought at $50.00 with a stop at $48.00, so the initial risk is $2.00 per share, or 1R. While the trade is open, the lowest price is $48.80 and the highest is $56.00. The position is sold at $54.00.
| Measure | Per share | Dollars (100 shares) | In R |
|---|---|---|---|
| MAE (50.00 − 48.80) | $1.20 | $120 | 0.6R |
| MFE (56.00 − 50.00) | $6.00 | $600 | 3.0R |
| Realized result (54.00 − 50.00) | $4.00 | $400 | +2.0R |
The trade came within 0.4R of its stop before working, and the exit kept 2.0R of a 3.0R move: about two thirds of the MFE, with 1.0R given back from the high. A short example works the same way in reverse: shorted at $80 with a stop at $84 (1R = $4), a high of $82 is an MAE of 0.5R and a low of $72 an MFE of 2.0R.
How to read it across many trades
One trade's numbers say little; the value comes from dozens of trades of one setup, split into winners and losers.
- Winners' MAE and the stop. If almost every winning trade stayed well inside the stop (say, never beyond 0.5R against while the stop sits at 1R), the stop may be wider than the setup needs. A tighter stop allows more shares for the same dollar risk but would also have cut some winners, so test the change on the record.
- Losers that turned around. If many trades were stopped out and then went on to reach the target, the stop may sit inside the stock's normal noise: too tight, or placed at an obvious level. Volatility-based stops (ATR stops, with the ATR stop calculator) and the methods in stop-loss placement are the usual next step.
- Losers' MFE. Losing trades that first went 1R or more in favor point to a management question: whether a rule such as moving the stop to break-even or a trailing stop fits the setup.
- MFE versus realized R on winners. Comparing the result with the MFE shows how much of each move the exits keep. A large, steady gap suggests targets or trailing rules give back much of the move. MFE ends at the exit, so it cannot show how far a stock ran after it; that needs a separate look at the chart. Planned targets are covered in risk-reward ratio and the risk-reward calculator.
For example, eight trades of one setup, each with a 1R stop:
| Trade | Result | MAE | MFE |
|---|---|---|---|
| 1 | +2.0R | 0.3R | 2.4R |
| 2 | +1.5R | 0.5R | 2.8R |
| 3 | −1.0R | 1.0R | 0.2R |
| 4 | +0.8R | 0.2R | 1.9R |
| 5 | −1.0R | 1.0R | 0.9R |
| 6 | +2.5R | 0.4R | 3.0R |
| 7 | −1.0R | 1.0R | 0.1R |
| 8 | +1.2R | 0.6R | 2.2R |
The five winners never went more than 0.6R against (0.4R on average), so the stop had room to spare. Their MFE adds up to 12.3R, of which the exits kept 8.0R, about 65%; on average each winner gave back 0.86R from its best point. Loser 5 was 0.9R in profit before it was stopped out. These are questions for the next trade review, not conclusions: eight trades are far too few to change a rule.
Limitations and common mistakes
- Daily bars approximate the path. With daily highs and lows, the entry day's low may have come before the fill and the exit day's high after it, so MAE and MFE can be overstated. Intraday data narrows the error but does not remove it.
- Small samples. Stop and exit changes need a large number of trades of the same setup; mixing setups blurs the picture.
- Hindsight. MFE is the best price in hindsight. No exit rule captures all of it, and judging every exit against the top encourages holding too long.
- Changing one thing changes the rest. A tighter stop changes position size, the number of stop-outs and which trades survive to their targets. Re-test the whole rule set.
In Clear Tape
The trade journal, free for every signed-in member, measures MAE and MFE for each trade from daily bars: the worst and best price per share between the entry day and the exit day (today's bar for an open trade), against the average entry, in dollars and in R. The figures are approximate, because the entry day's low may come before the fill, and the bars are adjusted for splits and dividends; when their price basis does not match the fills, nothing is measured rather than a wrong number. The AI trade score also reads MAE and MFE when it grades the process of a closed trade, alongside the member's own rules and never the P&L. Details are on the trade journal page; what else to record is in trading journal.
For educational purposes only. Not investment advice.