OptiNod Academy
MFE and MAE — Look at the path a trade took before changing the exit
Recording maximum favorable and adverse excursion lets you compare exit rules. This article uses real trades to show how to read MFE and MAE with a matched observation window and fill order.
Trades entered at the same price end differently depending on the exit rule. Before changing the exit, check how high the trade went while held and how far it fell.
Take the trade that bought BTC at $17,128 on January 9, 2023 with a stop at $16,533. With a 2R target it ends at +2R three days later. With no target and a 3×ATR trailing stop it ends at +8.35R on February 9, and with half taken at +1R it ends at +4.67R. Even with the same entry, the result varies widely depending on which exit is attached.
The records used to examine this difference are maximum favorable excursion (MFE) and maximum adverse excursion (MAE). MFE is the unrealized profit up to the most favorable price during the hold, and MAE is the unrealized loss down to the most unfavorable price. It does not mean you could actually have exited at that price. If you set the loss at the initial stop distance as 1R, trades at different price levels can be compared in the same unit.
This series compares profit targets, trailing stops, breakeven stops and partial profits, time stops, and pyramiding in turn. The common entry rule is to buy at the next bar's open when a BTCUSDT daily close exceeds the prior 20-day high. The initial stop is two times the prior bar's ATR(14) below the entry price, and the maximum hold is 120 bars including the entry bar.
The data is Binance BTCUSDT daily bars through September 22, 2026. There are 211 analysis signals since April 2018, and commissions and slippage are excluded. A position still open on the last day is valued at that day's close. The hit rates below are computed independently for every signal, and the per-rule results come from holding one position at a time. This is a past comparison on a single instrument, so the numbers here must not be read as expected returns in other markets. Cumulative R is a comparison that allocates the same amount as 1R to every entry, and it is not a compounded account return.
With the same entry rule, the win rate changes with the exit
In this sample the win rate of the 1R target was 58.8% and that of the 3×ATR trailing stop was 37.7%. The average result per trade, however, was +0.18R and +0.61R respectively. The side with the higher win rate did not also have the higher average result.
The 1R target locks in small profits often, while the trailing stop holds some trades longer. As a result the target method took 97 trades and the trailing method took 61. Because signals are skipped during a hold, even with the same entry rule the actual entry dates are not all the same. To see the effect of a particular exit, you need to look at the result of the same single entry side by side as well as at overall performance.
The expectancy mentioned in later articles is this sample's average result per trade. Expectancy reflects not only the win rate but also the size of winning trades and the size of losing trades. When you change an exit rule, check these three items together with the number of trades.
Read MFE together with where the observation ended
The trade entered at $75,572 on November 7, 2024 with an initial stop at $70,465 has a 1R of about $5,107. Held with a 3×ATR trailing stop, its MFE was 6.42R on December 17, and its actual exit result was +4.10R on December 19. The gap from not exiting at the peak is also part of the trailing result.
But if the same trade had ended at a 3R target, that trade's MFE would also have to end at the exit. The fact that price rose to 6.42R after the exit should be recorded separately as movement after the exit. If you put later prices into the MFE of a trade that has already ended, the path actually experienced during the hold gets mixed with the path under a different rule.
The overall signal hit rates in this series were obtained from separate hypothetical trades that used only the initial stop and were observed for at most 120 bars. The share that reached 1R before the stop was 57.8%, 2R was 43.1%, 3R was 37.4% and 8R was 24.6%. The median MFE is 1.27R, but the top quarter was 7.78R or more. In samples like this you need to look at the median together with the weight of the large trades. It is hard to choose a target from the average alone.
Looking only at stopped-out trades that were once profitable can make you exit too early
Among hypothetical trades with only the initial stop, 50 of the 138 stopped-out trades had risen to +1R or more beforehand. The trade entered at $91,530 on January 5, 2026 also reached +1.31R on January 14 and then hit the initial stop on January 25.
Looking at such trades, you feel like taking profit right at +1R or moving the stop up to the entry price. But the same rule can also end early the trades that retest the entry price and then rise a long way. You have to count both the cases where a loss was avoided and the profit that was missed. Part 4 compares these two effects.
To compare stop widths with MAE, include the moment of the exit
If a trade with a -1R initial stop was stopped out, its MAE is at least 1R. If you leave out the day of the stop and record only the lowest price through the previous day, the value is smaller than the loss actually experienced. If a gap filled the exit below the stop price, MAE can also exceed 1R.
When looking at the MAE of trades that reached the target, you also need to match the window. Computing each of the 211 signals with a 2R target and a -1R stop, 91 trades reached 2R. The median MAE they experienced before first reaching 2R is 0.29R, and about 67% were under 0.5R. This differs from a value that includes the path of holding several more months after reaching 2R.
You cannot cut the stop in half right away based on this value alone. You have to recompute which trades would have hit the tighter stop first, and match the position size and the R basis. For a comparison that widens the stop, you need to replay the prices after the old stop under the new condition. When reviewing stop placement, MAE is a starting point, and it does not substitute for the performance of the changed rule.
Daily bars alone cannot tell which of the high and the low came first within the same day. This calculation assumes the order open → low → high → close. On a day when the stop was hit first, only the path up to the exit price is recorded, and the later high is not put into MFE. If the actual intraday order was different, the result could differ too.
In the trade record, keep the basis as well as the prices
To compare like with like, record the following items.
- Entry, initial stop and size: Distinguish whether 1R is a price distance or an actual loss amount, and keep the risk amount of each trade.
- MFE, MAE and their timing: Observe from entry to the moment of exit. Keep the path after the exit as a separate item.
- Time to reach the target: Record the bar that first reached +1R. The entry bar counts as bar 0.
- Exit price and reason: Write down which condition ended the trade: target, stop, trailing stop or time stop.
- Fill assumptions: Match how you handle the order when the target and the stop are both touched in the same bar, gaps, and commissions.
As records accumulate, the feeling that "stops get hit often" can be turned into concrete questions. Start by checking how much the trades that reached the target swung beforehand, and how long the trend continued after a breakeven exit. This is the first step in using a trade journal as a dataset.