Why Traders Must Understand Maximum Adverse Excursion (MAE) to Improve Stop Loss Placement

Many traders face the same recurring problems: their Stop Loss orders are hit too frequently even when their directional analysis is correct, or sometimes they set their Stop Loss too wide, resulting in large losses when actually triggered. These problems stem from setting Stop Loss levels without supporting data—just guessing or relying on intuition. In reality, there is one statistic that professional traders widely use to solve this problem: Maximum Adverse Excursion (MAE), which is an indicator that shows the maximum floating loss each of your orders experienced before closing.

What Is Maximum Adverse Excursion (MAE)

Maximum Adverse Excursion, or MAE, is the largest unrealised loss that occurs in a given order from the time it is opened until it is closed, regardless of whether that order closes with a profit or a loss.

For example, you open a Buy order on EURUSD at 1.1000. Whilst holding the order, the price drops to 1.0950 (a floating loss of 50 pips) before reversing upwards and you close at 1.1050 with a 50-pip profit. In this case, the MAE of this order is 50 pips, even though the final result was profitable.

Or another example: you open a Sell order on USDJPY at 150.00. The price rises to 150.30 (a floating loss of 30 pips) before dropping sharply and you close at 149.50 with a 50-pip profit. This means the MAE of this order is 30 pips.

Tracking the MAE of every order allows you to see the overall picture of how much floating loss your orders typically experience before reaching their target, and this information is extremely valuable for improving Stop Loss placement.

Why MAE Is Important for Stop Loss Placement

Most traders set their Stop Loss based on support/resistance levels or a percentage of their remaining capital, but often fail to consider the actual behaviour of the market and their own trading style. The result is:

• Stop Loss too tight: Frequently stopped out before price moves in the analysed direction
• Stop Loss too wide: When actually hit, losses are heavier than necessary, destroying the planned Risk-Reward ratio

Analysing MAE from your own trading history helps you understand what level of floating loss is still normal and at what point it begins to indicate that the order is genuinely wrong and should be cut.

For instance, if you analyse data from 100 past orders and find that 80% of profitable orders have an MAE no greater than 20 pips, this suggests that setting a Stop Loss at 25-30 pips may be more appropriate than setting it at 50 pips (unnecessarily wide) or at 10 pips (too tight and easily triggered).

How to Use MAE to Improve Your Trading Strategy

1. Analyse MAE of Winning and Losing Orders Separately

Start by extracting your trading history data (if you use a trading journal or statistics tracking system such as Thaifxbook, this becomes easier), then separate orders into two groups: winning orders and losing orders.

Look at the MAE of each group. You will find that:

• Winning orders: Typically have relatively low MAE, indicating correct direction with price not retracing much before reaching target
• Losing orders: Typically have higher MAE, showing that when direction is wrong, price often moves against you significantly from the start

If you find that 90% of winning orders have an MAE no greater than 30 pips, but losing orders have an MAE exceeding 30 pips early on, this means that setting a Stop Loss at approximately 30-35 pips may be an appropriate point to cut losses before they escalate.

2. Create an MAE Distribution Chart

A method used by professional traders is to plot an MAE chart against order outcomes (profit/loss), with the X-axis representing MAE and the Y-axis representing the final result of the order.

From this chart, you will see:

• At what point orders clearly separate into "profit" versus "loss"
• If MAE exceeds that point, the probability of the order returning to profit decreases significantly

This point is the appropriate level for setting Stop Loss because it reflects the actual behaviour of the market and your trading system.

3. Adjust Stop Loss According to Currency Pair and Strategy

MAE is not a single number for all situations. High-volatility pairs like GBPJPY naturally have higher MAE than EURUSD, and scalping strategies have different MAE from swing trading.

Therefore, you should analyse MAE separately by:

• Currency pair traded
• Timeframe used
• Type of setup (trend following, counter-trend, breakout, etc.)

This level of fine-tuning will make your Stop Loss more accurate and appropriate for each situation.

Using Thaifxbook to Track MAE and Other Statistics

Manually calculating MAE from trading history is time-consuming. Fortunately, platforms like Thaifxbook can connect to your MT5 account and automatically extract detailed trading statistics, including data related to MAE.

When you have comprehensive and accurate statistical data, you can:

• See the floating loss behaviour of every order
• Compare MAE between winning and losing orders
• Improve Position Sizing and Stop Loss to align with actual data
• Reduce unnecessary stop-outs and increase the efficiency of your trading system

Beyond MAE, Thaifxbook also displays other important statistics such as Profit Factor, Drawdown, Average Win/Loss, and Recovery Factor that help you see the overall picture of your trading more clearly.

Mistakes to Avoid When Using MAE

Although MAE is a powerful tool, there are precautions to observe:

• Using too little data: Do not draw conclusions from 10-20 orders. You should have data from at least 50-100 orders or more to get a clear picture
• Not considering market conditions: MAE during high volatility periods (such as major news events) will be higher than normal periods. These should be analysed separately
• Setting Stop Loss too tight based on average MAE: You should look at the percentile (such as 80th or 90th percentile) of MAE in winning orders, not just the average alone
• Forgetting to adjust for market conditions: As market conditions change, MAE changes too. You must review and adjust periodically

Summary

Maximum Adverse Excursion (MAE) is a statistic that professional traders use to understand how much floating loss their orders typically experience before reaching their target. Analysing MAE from actual trading history helps you set Stop Loss more accurately—not so tight that you are stopped out frequently, and not so wide that you risk more than necessary.

Using statistics tracking tools like Thaifxbook allows you to access MAE and other statistics conveniently, making strategy improvement systematic and data-driven rather than based on guesswork or intuition. When you understand and use MAE correctly, you will be able to manage risk more effectively and increase your chances of sustainable long-term profitability.