How far did it go against you?Let your trades tell you where the stop belongs.
The pain a trade puts you through before it works is data, and most traders never write it down. MAE measures how far a trade went against you, and across many trades it shows where your stop belongs.
How far it went against you
The second of the 2 columns records the other side of the trade. MAE, the maximum adverse excursion, is the furthest a trade moved against you before you closed it. Say you buy EUR/USD at 1.1000, it dips to 1.0950, and then it goes back up. Your MAE is 50 pips.
MAE shows how much risk you actually lived through: how far price moved against you before it recovered or before you closed. That makes it the number to look at when you judge your risk management and where you place your stop.
Measure it against your risk
In percent, you measure MAE against your risk. Say you risk 1%, and at its worst the trade went 0.5% against you. That is halfway to your stop-loss. The trade never came close to taking you out.
With a stop 100 pips away carrying your 1% risk, the 50-pip dip from the first example is exactly that: 0.5%, half the way to the stop.
What many trades tell you
Now look across many trades. If your MAE is consistently around 0.5%, your trades rarely get near your stop. You could tighten the stop by about 20% and improve your risk to reward without taking extra risk, because your journal shows the extra room isn’t needed.
Here is what that does. Say your stop is 50 pips and your target 100 pips, a ratio of 1:2. A stop 20% tighter sits at 40 pips, and the same 100-pip target becomes 1:2.5, with the same 1% at risk.
But if your MAE keeps landing at 0.8 or 0.9%, your trades are getting dangerously close to your stop. That is a warning. Work on your entries or your timing, because you are sitting through big drawdowns compared with what you risk.
Log the ATR in percent
Another column helps here: the ATR in percent. ATR, the average true range, measures how much price normally moves. Write down what it was when you took the trade.
It reminds you to set your stop with the market’s volatility in mind. Later, next to the MAE, it lets you check whether your stop made sense for how volatile the market was at the time.
Mistakes to avoid
- Tightening your stop after a few calm trades. Base it on the typical MAE over many trades, or the first normal dip will take you out.
- Treating a high MAE as bad luck. If trades keep going 0.8 or 0.9% against you before they work, your entries or timing need work.
In short
- MAE is the furthest a trade moved against you before it closed: buy EUR/USD at 1.1000, see it dip to 1.0950 before it rises, and your MAE is 50 pips.
- In percent, measure it against your risk: a typical MAE around 0.5% with 1% at risk means trades rarely get near your stop, and a stop about 20% tighter can improve your risk to reward.
- An MAE that keeps reaching 0.8 or 0.9% is a warning to work on your entries or timing, and the ATR in percent at the entry shows whether your stop suited the volatility.
Questions
Is a low MAE always good?
It means your entries rarely put you under pressure. If it stays low across most trades, your stop may be wider than it needs to be, which is what the 20% tighter stop is about.
What is the ATR in percent?
The average true range, how far price typically moves in a period, written as a percentage of the price. Logged at the entry, it lets you check later whether your stop suited the volatility at the time.
Key terms
- MAE (maximum adverse excursion)
- How far a trade moved against you before it closed. It shows whether your stops are too tight or too wide.
- Pip
- The smallest standard price step in a currency pair. For most pairs it is the fourth decimal (0.0001), for yen pairs the second (0.01).
- Stop-loss
- An order that closes your trade at a set price to limit the loss. It belongs where your idea is proven wrong, not at a random distance.
- Risk to reward
- How much you can win compared with how much you risk. At 1:2 you aim to make 2 for every 1 you risk.
- ATR (average true range)
- The average size of a price bar over a period, usually 14 bars. A simple way to measure how much a market normally moves.
- Volatility
- How much and how fast price moves. High volatility means bigger swings, so your stop and position size must fit.