Support Board

OPTIMIZING ORDER PLACEMENT
Maximum Adverse Excursion (MAE)
The MAE is the largest experienced loss during a trade; it measures how far price went against you. For example, for a long trade with an entry at $100 and a lowest price of $94 during the duration of that trade, you had a $10 MAE – with a stop at $90, the MAE could be expressed as 60%.

The MAE measurement can be used to analyze the effectiveness of stop placement. A trader with a very low overall MAE could potentially increase his expectancy and the size of his winners by using a tighter stop. However, adjusting stop size has to be done with care since a tighter stop usually leads to a higher loss rate.



Maximum Favorable Excursion (MFE)
The MFE is the opposite of the MAE and it measures the largest observed profit during a trade.

A high MFE on losing trades shows that price went close to the profit taking level, before turning and running into the stop loss. A trader could then, potentially, improve his approach by using profit targets that are a little more conservative.

Again, adjusting order placement has to be done with care. A tighter profit taking approach leads to a reduced expectancy. A trader, thus, has to find the right balance between using a smaller take profit level to avoid giving back profits and not reducing his overall expectancy at the same time.