Calculation and mechanics
For a long position the MAE is the distance from the entry price to the lowest price during the trade, the MFE the distance to the highest price. For a short position it works the other way round. Both can be stated as an amount per unit, as a percentage of the entry price or in units of the risk originally taken.
An example: a stock is bought at 100, falls to 96 along the way, later rises to 112 and is sold at 106. The MAE is 4%, the MFE 12%. The realized gain is 6%, that is 50% of the largest move reached along the way.
When only daily bars are used for the calculation, the entry and exit days count in full. Price moves before the actual entry or after the exit on the same day can then enter the calculation. In that case MAE and MFE are approximations.
MAE = entry price - lowest price, MFE = highest price - entry price (long position, both as positive amounts)
Distinction
The R-multiple shows how a trade closed relative to the risk originally taken. MAE and MFE instead describe the path between entry and exit. A small MAE among winning trades can indicate that these positions moved only little against the entry. A large MFE among losing trades shows that these trades were clearly in profit at some point before they were closed at a loss.
The Max drawdown looks at declines of the whole equity curve. MAE and MFE always refer to a single trade.
Related terms
- R-multiple (R, result in R)
- Max drawdown (Maximum drawdown, MDD, time in drawdown)
- Win rate (Hit rate, percent profitable)
- Expectancy (Average result per trade, expected value)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.