• Skip to primary navigation
  • Skip to main content
  • Skip to footer
Trading Heroes

Trading Heroes

Forex Trading Education

  • Free Tutorials
  • Products
  • Resources
  • About
  • Login

MFE and MAE in Forex and How They Can Help Your Trading

MFE and MAE are trading metrics that are not talked about too often in trading education, and for good reason. They can be a little confusing. But if you understand them, they can give you deeper insight into your trading performance.

Home / Trading Journal / MFE and MAE in Forex and How They Can Help Your Trading

In this post, I'm going to break down MFE and MAE, show you where you can get these metrics, and how to use them to improve your trading.

Note: I favor using multiple of risk, instead of pips or dollar amounts, when measuring these metrics. So I'll add a “R” to the end of some of these names to tell you that I'm using the risk multiple.

If you had a 50 pip stop loss on a trade, and you made 100 pips on that trade, then you would make +2R. In my opinion, this is a much more useful way to measure your results because it's relative to your stop loss.

Measuring results by dollar amounts or pips does not take into account how much you risked to achieve a result.

Shortcuts to Sections

What MFE and MAE Stand For

Maximum Favorable Excursion (MFE)

Maximum Adverse Excursion (MAE)

Example

How They Can Improve Your Trading

Leave Less Profit on the Table

Tune Your Stop Losses

Warnings When Using MAE and MFE

Have a Significant Sample Size

What Happens Afterwards Matters Too

Use the Right Type of MAE and MFE

How to Get MFE and MAE

Final Thoughts on MFE and MAE

You Might Also Enjoy

mae and mfe explained

What MFE and MAE Stand For

Maximum Favorable Excursion (MFE)

The maximum amount of profit that was available while a trade was open.

Maximum Adverse Excursion (MAE)

The maximum amount of loss that was available while a trade was open.

SEE ALSO: Learn the RSI Divergence trading strategy that works

Example

Here's an example of MAE/MFE on a chart. I also threw in MaxR, which I'll explain later in this post.

MFE and MAE on a chart

How They Can Improve Your Trading

There are two ways that MAE and MFE can be used to improve your trading results.

Leave Less Profit on the Table

If you notice that your average MFE is significantly better than the average result of your trades, then you are leaving profits on the table.

For example, let's say that you have 100 trades and your average profit is 1.4R. But when you look at your average MFEP on these trades, it's 2.6R.

This might mean that you can move your profit targets to 2R to capture more profits on your winning trades.

MFE can help on losing trades too. Let's say that the average MFER on your losers is 1R. This means that there are probably quite a few trades where you could have had a nice profit, but for some reason, you took a loss.

It could be a function of your trading strategy, but it could also mean that you are closing your trades out too late and are missing the most profitable part of the move.

Whatever the case may be, your average MFE could give you clues on how to leave less profit on the table.

Tune Your Stop Losses

First of all, if the average MAER of your trades is more than about 1.1R (accounting for slippage), then you're probably moving your stop loss in a negative direction, after you enter the trade. This is an easy red flag to spot and a habit that can be easy to fix.

Now, there may be profitable trading strategies were you need to move your stop loss in a negative direction, but I've never seen one. For the most part, you should only be moving your stop in a positive direction. Tracking MAER on all your trades will alert you to this issue, so you can improve your trading habits.

Second, if your MAER on winning trades is consistently less than 1R, you can explore the idea of tightening up your stop loss. For example, if your MAER on winning trades is -0.22R, then you may be able to cut your stop loss in half and still get good results.

A decrease in stop loss would also improve your returns, even if you use the same take profit levels.

Warnings When Using MAE and MFE

Trading metrics can help you dramatically improve your trading, but also you have to understand their limitations. So let's take a look at a couple of things that you should be aware of when using MAE and MFE.

Have a Significant Sample Size

Large sample size

First, you need to be sure that you have a significant number of trades before you start making changes to your trading strategy. If you have a strategy that doesn't produce frequent trading signals, then you should look for a minimum of 30 trades. Ideally, you would have at least 100 trades before you start making any decisions, but that's not always possible.

You can get more data by backtesting or beta trading. This will allow you to build up the number of trades that you examine and allow you to make more informed choices.

SEE ALSO: The Best Trading Psychology Books of All-Time

What Happens Afterwards Matters Too

Second, one thing that these metrics don't show you is what happens after your trades are closed. This is why I started using MaxR with MFE and MAE.

In order to improve the profitability of a trading strategy, you can either reduce the stop loss, or increase the take profit. It's generally easier to increase the take profit level, and using MaxR can help you do that. MFE won't help you unless you are closing your trades way too late. Even then, you might be able to squeeze a little more out of your trades by using MaxR instead of MFE.

Use the Right Type of MAE and MFE

Finally, be sure to measure MAE and MFE in a way that actually helps you. As I mentioned before, these metrics can be measured in different ways:

  • Pips
  • $ per share (stocks)
  • Total $ per trade
  • Multiple of risk

If you only trade one market, then pips or $ per share is fine. For example, if you only trade the EURUSD or just the S&P500 E-mini, then you are comparing apples to apples when doing your trade analysis.

However, if you trade multiple currency pairs, then 10 pips in the EURUSD won't be an accurate comparison to 10 pips in the GBPJPY because the GBPJPY is much more volatile. Similarly, a total MFE of $25 in Apple stock can't be compared to a $25 MFE in USDCHF because they are two totally different markets, with different volatility and commission structures.

When you use the same trading strategy across multiple markets and currency pairs, the most accurate way to compare the results is by using P-ratio. 

How to Get MFE and MAE

There are several different ways that you can get these metrics. Most trading journals like MyFxBook will give you MFE and MAE.

But in my opinion, most trading journals don't display these metrics in a way that's useful.

For example, MyFxBook gives you these stats in pips. As I mentioned above, that works well if you only trade one pair, but if you trade multiple pairs, the information becomes less useful. Here's an example of the MyFxBook chart.

MAE vs trade outcome chart

I don't know about you, but I've always had trouble understanding how this MAE (and similar MFE) graph can help me improve my trading results. If it works for you, then fantastic…use this graph.

But if you're like me and would prefer a more useful presentation of MAE and MFE, then try this next method.

Another way to get MAE and MFE is to simply record it yourself in a spreadsheet. I find it useful to record these stats in P-ratio format or MAEP/MFEP.

For long trades: 

  • MAEP: (MAE price – entry price) / (entry price – stop loss price)
  • MFEP: (MFE price – entry price) / (entry price – stop loss price)

For short trades: 

  • MAEP: (entry price – MAE price) / (stop loss price – entry price)
  • MFEP:  (entry price – MFE price) / (stop loss price – entry price)

Then average your MAEP and MFEP and see what you discover. If you have at least 30 trades, you can start to think about making changes to your strategy.

Final Thoughts on MFE and MAE

So that's how to use MFE and MAE to improve your trading.

They may help you…they may not. It all depends on how well you are currently trading.

But if you have never analyzed these metrics before, they are certainly worth looking at. You might be surprised at what you discover.

 

What did you learn from analyzing your MFE and MAE? Leave a comment below and let us know…

You Might Also Enjoy

3 Painless Steps That Ensure You Always Fill Out Your Trading Journal
MaxR vs MFE: Why You Need Both
A Great Free Online Forex Trading Journal

Category: Trading Journal Tag: MyFxBook Tutorials, Trading Metrics

About Hugh Kimura

Hi, I'm Hugh. I'm an independent trader, educator and international speaker. I help traders develop their trading psychology and trading strategies. Learn more about me here.

Top

 

Share This Article


First posted: June 25, 2013
Last updated: May 17, 2020

Footer

Company

  • Support
  • About Trading Heroes
  • Trading Courses and Education
  • Recommended Resources
  • T-Shirts & Trading Gear
  • Charities We Support

Tutorials & Guides

  • Free Forex Trading Course for Beginners
  • Best of Trading Heroes
  • Forex Trading Blog
  • Best Trading Books
  • Forex Trading Strategies
  • What is Forex?
  • Podcast

Community

  • YouTube
  • Twitter
  • Dtube
  • Odysee
  • Flote
  • Minds
  • Private Trading Community
  • Contact
Trading involves substantial risk and there is always the potential for loss. All content on this website is for educational and informational purposes only and is not trading, investment, or medical advice. You should be aware of the risks associated with trading and seek advice from an independent certified financial adviser if you have any doubts. Some links on this page might be affiliate links, where we get a small commission if you purchase through the link. It doesn't cost you anything extra and we only recommend products that we absolutely love. This site uses cookies and using this site means that you agree to the use of cookies.

 

CFTC Rules 4.41 - Hypothetical or Simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, because the trades have not actually been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs, in general, are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Testimonials appearing may not be representative of other clients or customers and is not a guarantee of future performance or success.

 

 

 

 

 

Copyright © 2007–2021 TrueLiving Media LLC | Terms | Privacy | Risk
How to choose a trading system guide

Get the FREE Guide to Picking the Best Trading Strategy For YOU

x