Consistency is key (In losses especially). How I use Maximum Favorable Excursion (MFE)

You want SMALL losses. I have a max loss of $40, 1 trade in the chart had -$45 because of slippage. Small losses are quick and easy to forget about. You never want to be stuck in a losing trade / digging yourself a hole. Always cut your losses quick!

MFE stands for Maximum Favorable Excursion. It is a measure of the most profit that COULD have been extracted from a given trade. For example, a position goes 10 points ($200) up from your entry and you end up exiting at 6 points ($120), this results in an MFE of $200 and a DIFFERENCE of $80. The difference is what I care about most when analyzing my results.

Check out this chart from my most recent 20 trades (approx):

I want to stress that I take consistent small losses which are expected in this business. I have a max loss of $40 on a trade. My goal in a position is to be correct on a move and average into the trade with another contract. So I take what I call “attempts”. When I’m getting stopped out for $5, this means the expectation of the move never happened or I got stopped in a quick move back. The thing to realize is that each one of those $5 “attempts” were RISK-FREE after moving my stop and my profit potential was theoretically unlimited.

Remember, keep losses small and try to move your stop to risk-free as soon as possible.