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

I used it extensively in one of my BOT projects, as it is a good metric of how the BOT is performing
however MAE/MFE are not like a holy grail, they are just one of the tools in the toolkit of the trader

Ron's Alpha Trade Method (ATM) BOT Hello I have been trading for some time the Alpha Trading Method (and been posting trades to both the thread ATM Trading Method Vendor Free ( and my personal trading journal (. Credit for the initial posting of the ATM method goes to JDNeeman and …

@md1933

'Way of the Turtle' by Curtis Faith is a good book. He was one of the original Turtle Traders and later co-founded a software company called Trading blox for trading back testing and analysis.
The book is an entertaining read and a good primer on the merits and types of back testing and different metrics for analysis and the merits of those. I remember he suggested testing entries and exits separately. So test an entry strategy with a simple time based exit. Time dependent on the time frame of trader you are. If holding trades for a few days for example you might test with exits of 1, 2, and 3 days so it is easy to see whether your trades tend to go in to profit immediately then fall back or vice versa. No tick based stop allows the trade to have a realistic MFE and MAE without it artificially getting stopped out. When a suitable entry method is found then different exit startegies can be worked on. There are a few pages on MFE and MAE and he also talks about an edge ratio which is a ratio of the two.

(Something I rmember as a much heavier going read, if you become more interested in system analysis, would be 'The Evaluation and Optimization of Trading Strategies' by Robert Pardo. Surprisingly though, looking in the index, that doesn't even mention MAE and MFE).

matthew28 ,

Thank you so much for sharing that information

Very helpful , Thank you

To me these metrics have been very helpful to optimize my profit target vs my stop loss. They help you consider several obvious "What if" type of scenarios. Here are a few helpful examples:

1. If your stop loss keeps getting hit, but you reach 75% of your profit target by way of the MFE, then you can consider cutting your point value of your profit target down to increase the volume of times it gets hit. To know if this will be a better strategy you can simply analyze your trade history and take all of your losers that had hit 75% of your original profit target and assume these would be winners, but you also have to take all of your profit targets that got hit and turn them into 75% of the point value. If you run this analysis and find that this would be a more profitable way to set your PT v SL then there you go. I used 75% arbitrarily, but this should give you an interesting way to figure out the sweet spot.

2. Conversely you can analyze your MAE and determine for you winning trades how close did a trade get to hitting your Stop loss before it reached your profit target. If you are hitting on average 75% -90% of your SL but ultimately hitting your PT, you may not be able to do much, but if you are hitting 25% to 50% of your SL on your winners you may consider decreasing your SL size to reduce your loss size since you are only getting close to it rarely on your winners. This may provide you with an overall better expectancy.

3. You can consider the impact of different types of trailing stops, or other dynamically programmed profit targets during the life of the trade based on what your average MAE looks like for your winners and your average MFE looks like for your losers.

4. This may give you clues about the overall edge of your strategy, if you are hitting 100% of your PT by way of the MFE but still ending up with an SL on the trade, (You got 1 touch, but not enough volume to fill the order) you may want to try to set your targets higher. The longer you in a trade the more likely when you come to your target (PT or SL) you will strike and exit on first touch. Conversely if you are scalping for 1-2 ticks PT you may have to bump up against it 2-5 times or pass through it to exit with a PT.

I would be glad to share more or field any questions you have, but I think this should give you some cool ideas to play with.

Happy Trading!

Ian