{"id":16480,"date":"2019-02-22T16:32:01","date_gmt":"2019-02-23T00:32:01","guid":{"rendered":"https:\/\/www.tradingheroes.com\/?p=16480"},"modified":"2024-03-31T18:49:46","modified_gmt":"2024-04-01T01:49:46","slug":"mfe-vs-maxp","status":"publish","type":"post","link":"https:\/\/www.tradingheroes.com\/mfe-vs-maxp\/","title":{"rendered":"MaxR vs MFE: Why You Need Both"},"content":{"rendered":"

There are a lot of trading journals out there that give you MFE, or maximum favorable excursion.<\/p>\n

I've written about both MFE and MAE (maximum adverse excursion) in detail here<\/a>, if you aren't familiar with the terms.<\/p>\n

But there's one trading metric that I haven't seen in any trading journal.<\/p>\n

…and it has helped me a lot<\/em>.<\/p>\n

I call it MaxR<\/strong>.<\/p>\n

It's part of my Advanced Trading Metrics Tracking<\/a>.<\/p>\n

So in this post, I'll go over why you might want to track MaxR and how it can be used with MFE, to help you improve your trading edge.<\/p>\n

Definition of MFE<\/h2>\n

The maximum amount of money you could have made, while the trade was open.<\/p><\/blockquote>\n

MFE is very useful because it can help you see if you are doing any of the following:<\/p>\n

    \n
  • Letting your trades run longer than they should<\/li>\n
  • Not locking in profits quickly enough<\/li>\n
  • Setting your profit targets too far away<\/li>\n<\/ul>\n

    For example, this trade was stopped out shortly after entry. But the trade was in profit for some time before getting stopped out.<\/p>\n

    The MFE is marked on the chart below.<\/p>\n

    \"Example<\/p>\n

    If this happens to you a lot, then you should consider setting your profit target a little closer to your entry to capture more profits.<\/p>\n

    To see MFE in your trading journal, check out these trading journal solutions<\/a>.<\/p>\n

    But MFE only measures your missed profit, while your trade was open<\/strong>.<\/p>\n

    That's very useful, but it's only half of the story.<\/p>\n

    This is why you also need MaxR…<\/p>\n

    Definition of MaxR<\/h2>\n

    The maximum amount you could have made on a trade, during and<\/em> after your trade, if you did not move your stop loss<\/strong>.<\/p><\/blockquote>\n

    Essentially, you want to understand what the ideal scenario would have been on your trade, if you just left the trade alone.<\/em><\/p>\n

    For example, you may have initially been happy with the result of the trade below because it hit your take profit quickly.<\/p>\n

    But upon later review, you notice that you missed out on a ton of profit.<\/p>\n

    This was the MaxR on the trade. The “R” stands for Multiple of Risk<\/strong> or the result of the trade, relative to your stop loss.<\/p>\n

    \"Max<\/p>\n

    The MFE on this trade would have been 100% because it hit the profit target. MFE is a good stat to track, but it doesn't tell you how much profit you are missing out on after<\/em> you close the trade.<\/p>\n

    MaxR gives you this vital information. In this example the missed profits were quite significant.<\/p>\n

    Now there's a reason why most trading journal platforms don't include this information.<\/p>\n

    MaxR can be very subjective, so it's hard to calculate automatically.\u00a0<\/em><\/p>\n

    MFE and MAE are much easier to calculate.<\/p>\n

    For example, would you call exit A your MaxR level, or is exit B the correct MaxR level?<\/p>\n

    \"Max<\/p>\n

    Well, that really depends on your trading strategy and personality. If you are a shorter term trader, then exit A would be used to determine your MaxR. Longer term traders might opt to use exit B.<\/p>\n

    Also consider how much of a retracement you are willing to endure. Would you bail on a trade if price moved back to breakeven<\/a>?<\/p>\n

    I think most people would. So in that case, you would measure your MaxR before price moved back to breakeven.<\/p>\n

    The bottom line is to ask yourself if you would realistically leave a trade open for that long.<\/strong><\/p>\n

    If yes, then that is your MaxR level.<\/p>\n

    Here's a video explanation of MaxR…<\/p>\n