Add MFA to Max Draw Down/MAE for back testing/reports
What does MFE mean?
MFE stands for Maximum Favorable Excursion.
MFE marks the highest price during a long trade and the lowest price during a short trade. This shows you what the highest profit was during a trade.
What does MAE mean?
MAE stands for Maximum Adverse Excursion (Max Draw Down)
MAE marks the lowest price during a long trade and the highest price during a short trade. This helps you to identify what the maximum loss was during a trade. This is also known as maximum drawdown of the position.
Maximum Adverse Excursion ( Price MAE )
Defines the price of the asset that would have led to maximum losses during the trade.
Maximum Favorable Excursion ( Price MFE )
Defines the price of the asset that would have led to maximizing profits during the trade.
Maximum Adverse Excursion ( Position MAE )
Defines the maximum possible losses that could have taken place during the trade.
Maximum Adverse Excursion ( Position MFE)
Defines the maximum possible profits that could have taken place during the trade.
Why are these metrics important?
These metrics are key are they can answer the following key questions while trading:
How much profit did I leave on the table?
What could have been the best possible exit price?
What are the maximum possible losses I could have taken during the trade?
What could have been the worst possible exit price?
Answering the questions above can help you better understand whether the trade you took respected your trading rules and whether your exit could have been better or not.
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