Maximum Adverse Excursion (MAE)
Definition
Maximum adverse excursion (MAE) is the worst unrealised loss a trade experienced before closing. Trades that closed profitable but had large MAE were 'lucky' — they would have hit a tighter stop. MAE analysis reveals whether stops are properly placed and whether favourable closes are skill or luck.
In-depth: Maximum Adverse Excursion (MAE)
Maximum adverse excursion was popularised by trading researcher John Sweeney in the 1990s as a way to analyse stop-loss placement effectiveness beyond looking only at final trade outcomes. The insight: a winning trade and a losing trade can have identical paths until the final exit, so analysing only realised P&L hides important information about risk discipline.
MAE analysis applications:
• **Stop-loss placement evaluation**: by plotting MAE distribution across many trades, traders can identify whether stops are placed too tight (legitimate winners get stopped out prematurely) or too wide (losers consume large fraction of account before stopping). The optimal stop placement balances these tradeoffs • **"Lucky" winner identification**: trades that close profitable but had MAE >> the strategy's intended risk per trade reveal accidental wins; the strategy got away with unmanaged risk that could have produced large losses if the eventual recovery hadn't happened • **Win-rate inflation detection**: strategies with high win rate but high average MAE often inflate their win rate by holding losing positions until they recover; this trades win-rate appearance for catastrophic risk during the inevitable trade that doesn't recover • **Strategy edge attribution**: when comparing similar strategies, MAE analysis reveals which strategy actually has better entry timing vs which has merely been lucky with recoveries
MAE relationships to other metrics:
• **MAE vs win rate**: high win rate with high MAE is a red flag — the strategy is likely letting losers run hoping for recoveries • **MAE vs maximum favourable excursion (MFE)**: MFE is the largest unrealised gain before close. The ratio MFE/MAE characterises strategy edge — high MFE/MAE means winners go further than losers, characteristic of trend-following strategies • **MAE vs realised loss**: when MAE consistently exceeds realised loss, the strategy is closing losers before they hit hard stops; this can be discretionary management (good) or hidden martingale logic (bad)
For EA buyer evaluation: MAE analysis is rarely published in vendor marketing because it can reveal uncomfortable patterns about stop-loss discipline. Vendors providing MAE distribution analysis on verified accounts signal serious engineering investment in strategy evaluation; vendors who don't publish MAE may be hiding weak stop-loss discipline that produces vulnerable strategies during stress periods.