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Measuring MFE
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Measuring MFE

  #1 (permalink)
Elite Member
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Measuring MFE

I have a question about measuring the MFE.

Is this measured only during the trade, or are you also looking what would have been possible would you not have exited the trade?

When the latter is true, how long will you be looking? Till your initial stop would have been reached?

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  #3 (permalink)
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MFE Explained


MFE is the "maximum favorable excursion" (or maximum favorable movement) while you are in the trade.

MAE is the "maximum adverse excursion" (or maximum adverse movement) while you are in the trade.

Often it's worthwhile monitoring where a trade went after you exited to determine whether your system could be improved. This is particularly useful if you're relatively new to the system. However, that is not MFE as it's usually defined. But it would be MFE if your system was defined differently so that you were in the trade until that different point.

Cheers Rachel

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The question is how do you define favorable or adverse? Is favorable the the highest point before a pullback of more than X percent or is it the highest point price reached before a trade would have come back to your Breakeven?


Jason

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MFE: Favorable: For trades that ultimately become losers, this shows you the closest your trade came to reaching your profit target. So if your PT was 6 ticks and your SL was 6 ticks, and at some point during the life of the trade you were positive 4 ticks, but then the trade turned against you and you ultimately lost 6 ticks, your MFE would show 4 ticks positive. For winners, this stat isn't as useful because the MFE = the profit target. 6 ticks in the example. What is interesting is seeing how close to your PT you got during your losers.

MAE: Adverse: Same logic but backward: For winning trades, how far against you did your trade ever get. This will be a value close to your SL, but ultimately not = to your SL.

Does this help?

Ian



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The question is how do you define favorable or adverse? Is favorable the the highest point before a pullback of more than X percent or is it the highest point price reached before a trade would have come back to your Breakeven?


Jason


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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  #6 (permalink)
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You wouldn't consider how far Beyond your target price went ie. potential profit to be your MFE? If I that on average price goes 10 ticks past my target MFE= target+ 10 tics therefore I should consider moving my target by 5 tics.

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