MAE and MFE metrics ....... The "How to" and "where to find"

[md2324]

definitive answer(s)

I have heard about both MAE and MFE for sometime now , but up until recent , have really been researching it and studying the importance of their use, in helping us as traders, " know better " on where to place are Stops and Targets , to Maximize are Profits, and lessen our losses

Can others who use and are familiar in using and understanding these two Metrics, please recommend a website or two ( or a book ) for helping me in understanding the use of them ,
And then also , how to use these in Backtesting / Optimization on my Trading strategy , so that I can get Real World MAE and MFE numbers for my strategy and Individual trades computed as a whole, so I can see what ( if any ) adjustments I need to make on my Stop and Targets upon trade entries

Thanks so much

 

[SimpleMeLike]

definitive answer(s)

I have heard about both MAE and MFE for sometime now , but up until recent , have really been researching it and studying the importance of their use, in helping us as traders, " know better " on where to place are Stops and Targets , to Maximize are Profits, and lessen our losses

Can others who use and are familiar in using and understanding these two Metrics, please recommend a website or two ( or a book ) for helping me in understanding the use of them ,
And then also , how to use these in Backtesting / Optimization on my Trading strategy , so that I can get Real World MAE and MFE numbers for my strategy and Individual trades computed as a whole, so I can see what ( if any ) adjustments I need to make on my Stop and Targets upon trade entries

Thanks so much

Hello,

Maximum Favorable Excursion (MFE)– is a maximal unrealized profit while your trade is open.
Maximum Adverse Excursion (MAE)– is a maximal unrealized loss while your trade is open.

For every trade you take its logical to record the MFE and MAE. NinjaTrader does this for every trade you take. While you back testing just manually record the MFE and MAE per trade in your trading journal.

In my opinion, I would not adjust my profit target and stop loss just based on the MFE and MAE I have recorded for my trades until I have well over 1000 or more actual trades. This way I have a big sample size to justify my reasoning for changing the profit target and stop loss to the MFE and MAE, respectively.

Also, I like to record the Max Profit/Tick after Close, which means after I break even, exit for profit, or exit for a loss I record the max profit or ticks after the trade is close. This gives me an idea of how much money I could have made on the trade. It is just an extra metric to consider that could be of use later for performance analysis.

Hope this helps.

 

[Overnight]

Hello,

Maximum Favorable Excursion (MFE)– is a maximal unrealized profit while your trade is open.
Maximum Adverse Excursion (MAE)– is a maximal unrealized loss while your trade is open.
...

My brain cannot see the benefit of this. All it seems to portent is what you lost when you closed in profit, and what you saved when you closed in loss.

This is not conducive to trading. And in the final analysis, how could it help actual trading? Those figures cannot be calculated until the trades are done, not DURING the trades.

 

[md2324]

SimpleMeLike ,

Great point , in you stating that ..... " Also, I like to record the Max Profit/Tick after Close, which means after I break even, exit for profit, or exit for a loss I record the max profit or ticks after the trade is close. This gives me an idea of how much money I could have made on the trade. It is just an extra metric to consider that could be of use later for performance analysis. "

I am going to start writing down , and keeping records of this as well , Great Idea

 

[SimpleMeLike]

My brain cannot see the benefit of this. All it seems to portent is what you lost when you closed in profit, and what you saved when you closed in loss.

This is not conducive to trading. And in the final analysis, how could it help actual trading? Those figures cannot be calculated until the trades are done, not DURING the trades.

Overnight,

I have a friend who honestly don't see the reason in keeping a journal of his trades. He says "man, all i care about is rather or not I make money or not for the day, what's the purpose of keeping track of trades, when the P/L never lies"

Since, I don't make any money in trading, he is right. And so are you. If you don't see the benefit in MAE or MFE, pleeasssseeee by all means don't ever use it.

There is no right or wrong way into recording MAE or MFE, or whatever.

However, my logical reasoning is this: When I look at my trade journal I care about two things
1. How can I reduce loss?
2. How can I increase profit?

MAE and MFE is two metrics that can help me with questions 1 and 2 for my trading business.
Like Master P said "if it makes money, it makes sense"

Also, think about it as if you a trader working for a boss. And the boss says Overnight, I like your spreadsheet, what can we do to make more money and lose less money? Your answer can be, "well lets look at the average MAE and MFE and incorporate that for the next 50 trades as stop loss or profit target, respectively and see the results"

I hope that helps with understanding the benefit of MAE and MFE. But again, that's just my two cent.

 

[KDASFTG]

Greetings Md,

In response to your question for research material on MAE & MFE, see John Sweeney's book, ISBN 0-471-14152-6 and available at Amazon $13:

Hope this helps.

KDASFTG