Guide
MAE means maximum adverse excursion: the largest price move against your entry while the trade was open. MFE means maximum favorable excursion: the largest move in your favor over the same interval. Measure from the entry execution through the exit execution, never after the trade closes. The synthetic examples below use one entry, one exit, and an unchanged position size.
Let E be the executed entry price, S the initial stop, and H/L the highest/lowest prices during the entry-to-exit interval. Define one R as the positive price distance |E − S|, before fees. The initial stop must be below a long entry or above a short entry; a zero distance cannot be used as a divisor. Keep this initial denominator even if the stop moves later.
For a long: MAE in R = max(0, E − L) / |E − S|; MFE in R = max(0, H − E) / |E − S|. Gross result in R = (exit − E) / |E − S|. Here MAE and MFE are non-negative distances: use zero if there was no adverse or favorable movement. A losing realized result remains negative.
Suppose entry = 100, initial stop = 98, low = 99, high = 106, and exit = 104. One R = 2 price units. MAE = (100 − 99) / 2 = 0.5R; MFE = (106 − 100) / 2 = 3R; gross result = (104 − 100) / 2 = 2R. Both extrema belong to the time the trade was open. This is an invented educational example.
For a short, the adverse direction reverses: MAE in R = max(0, H − E) / |E − S|; MFE in R = max(0, E − L) / |E − S|. Gross result in R = (E − exit) / |E − S|. The same zero floor applies to excursion distances; it does not erase a realized loss.
Suppose entry = 100, initial stop = 102, high = 101, low = 94, and exit = 96. One R = 2. MAE = (101 − 100) / 2 = 0.5R; MFE = (100 − 94) / 2 = 3R; gross result = (100 − 96) / 2 = 2R. The example is synthetic and uses only prices seen between entry and exit.
The examples are price-based and exclude fees. For a linear instrument, initial money risk = initial price distance × quantity × value per price unit. Net result in R = (gross money P&L − commissions − other trading costs) / initial money risk. Execution prices already include execution slippage; do not subtract it twice. Partial fills, scale-ins, and partial exits need a documented quantity-weighted method with timed cash flows and changing exposure; these simple fixed-size formulas are insufficient.
A candle spanning the entry or exit time may contain a high or low reached while you had no position. Use sufficiently detailed data to isolate the actual holding interval, including execution prices, and use a consistent price source. Missing ticks, bid/ask differences, and coarse candles can change the result. An excursion is an observation from the available data, not proof you could have filled an order at that extreme.
Group by setup, instrument, session, and holding rules. Review the distribution of MAE, MFE, and net results for winners and losers; choosing stops from winners alone biases the evidence. There is no universal trade count that makes a new stop valid. Write a hypothesis, evaluate enough representative observations to assess uncertainty, and test one rule on separate subsequent trades before adopting it.
In both examples, the gross result captures 2R / 3R ≈ 67% of MFE. This is a descriptive ratio when MFE is positive, not a target to maximize. The extreme is known retrospectively; capturing 100% is not a sensible requirement. MFE ends at your actual exit and cannot show what a longer hold would have earned. Test a different holding rule separately, with its own risk, costs, and price path.
MAE means maximum adverse excursion: the largest adverse move from the entry price during the trade's entry-to-exit interval. This guide expresses that distance as a non-negative multiple of initial price risk, before costs.
MFE means maximum favorable excursion: the largest favorable move from entry while the trade was open. It excludes movement after exit and is not a guaranteed executable profit.
Divide the adverse and favorable price distances by the absolute distance between entry and the initial stop. For a long entered at 100 with stop 98, low 99, and high 106 before exit, MAE is 0.5R and MFE is 3R. Clamp each excursion distance at zero; calculate the net realized result separately after costs.
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