MFE / MAE / BSO

MFE: maxfavorableexcursion-macadverseexcursion

The Maximum Favorable Excursion is a term used to measure how much a trade moves in your favor, from your Entry.

So, if your entry price on a long position is 34, and for as long as the trade lasted, the market moved in your favor to a price of 35.50, this represents a MFE of 1.50 (35.50 – 34).

MAE:

The Maximum Adverse Excursion is a term used to measure how much a trade moves against you, from your Entry.

So, if your entry price on a long position is 34, and for as long as the trade lasted, the market moved against you to a low price of 33.25, this represents a MAE of .75 (34 – 33.25).

BSO: mfe-mae-bso

Best Scale Out. The closer your BSO is to the MFE, the better and more efficient your Exit strategy is… basically, not leaving too much money on the table.

If the gap between BSO and MFE is big, then you may have an issue taking your final target too soon and not letting your winners ‘run’.

 


Posted in: Trading Terminology (general product terms)