Maximize Your Profits with Maximum Favourable Excursion and Maximum Adverse Excursion in Trading Vault

Forex trading can be a profitable venture, but it's not without risks. One way to minimize those risks and maximize your profits is to use the concepts of Maximum Favourable Excursion (MFE) and Maximum Adverse Excursion (MAE). In this post, we'll define these terms, explain how they work, and provide some tips on how to use them effectively in your trading strategy.

What is Maximum Favourable Excursion (MFE)?

MFE is the largest profit that could have been made on a trade if it had been closed at the optimal time. For long (short) trades, it measures the distance between the entry price and the highest (lowest) point the trade reached before reversing, also known as Maximum Favourable Price (MFP). In other words, it's the maximum profit you could have made on a trade before it started going against you.

Using MFE in your trading strategy allows you to set realistic profit targets and avoid exiting a trade too early. By identifying the optimal point to close a trade, you can maximize your profits and reduce your risk.

What is Maximum Adverse Excursion (MAE)?

MAE is the largest loss that could have occurred on a trade if it had been closed at the worst possible time. For long (short) trades, it measures the distance between the entry price and the lowest (highest) point the trade reached before reversing, also known as Maximum Adverse Price (MAP). In other words, it's the maximum loss you could have experienced on a trade before it started going in your favour.

Using MAE in your trading strategy allows you to set realistic stop losses. By identifying the optimal point to close a trade, you can maximize your profits and reduce your risk.

Other Terms

• Available Trade Range (ATR): Difference between MFP and MAP.
• End Trade Drawdown (ETD): Difference between MFP and close price.
• Remaining Distance to Target (RDT): Difference between MFP and target price.
• Remaining Distance to Stop (RDS): Difference between MAP and stop price.

Trade Examples

Long Trade

Short Trade

How can MFE and MAE help you in trading?

By monitoring your MFE and MAE, you can gain insights into the effectiveness of your trading strategy. For example:

• Trades that reach a high MFE but reverse to a loss may indicate an adjustment to your exit strategy is needed.
• Trades with a low MAE but ultimately result in profit may show that tightening your stop loss could improve the reward-to-risk ratio.

Trading Vault's stats pages let you visualize MFE, MAE, and other key statistics through the trade performance graph. By clicking on any specific statistic, you can see it displayed on the graph for better analysis.

Pro tip: When analyzing MFE, filter your trades to view only the losers. For MAE, filter to view only the winners.

Recording MFE and MAE in Trading Vault

Using Trading Vault, you can record MFP and MAP, enabling the app to automatically calculate your MFE and MAE. This helps you analyze your performance and refine your strategies.

The 'Trade Performance' widget on the Stats page displays all your trades, allowing detailed performance analysis. Select any stat in the widget to view it on the graph. If a particular trade stands out, you can click it for more detailed analysis.

Conclusion

Using MFE and MAE can be a powerful tool in your trading strategy. By understanding these con