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🩺 Practical Diagnosis · Trade Review

Was the Exit Early, or the Entry Bad?
— MFE/MAE Diagnosis

When you review a losing trade, don't start by asking "why did I sell." Start by checking where the trade's high (MFE) and low (MAE) actually were — that alone usually tells you whether the problem was your entry or your exit.

Written by Dawn · IT Engineer · Published
💡 Key takeaway — If MFE was low, suspect the entry. If MFE was high but your actual return wasn't, suspect the exit. A diagnosis you can run yourself, without a tool.

Split the Trade Along Two Axes

Combine MFE (the peak) and MAE (the trough), covered in the previous article, and any single trade falls into one of four types.

① High MFE · Shallow MAEA smooth climb with no real pullback. If your actual return was low, you likely exited too early.
② Low MFE · Deep MAEIt never climbed and just chopped around instead. Likely an entry-timing or stock-selection problem.
③ High MFE · Deep MAEA big run up and a big drop. Direction was right, but you may have gotten shaken out by the swing — look at your stop and position size.
④ Low MFE · Shallow MAE"Dead money" — neither up nor down. It was a stock that never moved to begin with; no exit rule fixes that.

The core point: if MFE was low, no exit skill could have changed the outcome much. Conversely, if MFE was comfortably high and your actual return fell short of it, the problem lives in when you sold.

You Can't Call Something "High" or "Low" Without a Baseline

As of 2026-08-26 · matured sample 114,454 rows · source: universe_snapshot

What does it mean for your trade's MFE to be "high"? High compared to what — the population average is the baseline. Over a 20-trading-day window, the average MFE was +14.58% and the average MAE was −9.85% (see the previous article). If your trade's MFE came in below that average, the stock was, on the whole, one that doesn't move much. If it came in well above average and your actual return was negative, the move was above average — you just didn't capture it.

How to Actually Apply This — a Step-by-Step Walkthrough

  1. Record entry price, exit price, and holding period — your broker's trade history is enough if you don't keep a journal.
  2. Find the highest daily high during the holding period — (high − entry) / entry = your MFE.
  3. Find the lowest daily low during the holding period — (low − entry) / entry = your MAE.
  4. See which of the four types it fits — compare your MFE and MAE against the averages (+14.58% / −9.85%).
  5. Check whether the pattern repeats across several trades — don't conclude anything from one trade alone.

Say you entered at $100 and exited 12 trading days later at $108. If the highest daily high during that window was $121, your MFE was +21%; if the lowest daily low was $96, your MAE was −4%. MFE (+21%) sits well above the average (+14.58%), yet your actual return (+8%) fell far short of it, while MAE (−4%) stayed shallower than average, so you weren't shaken by a big swing either. That fits type ① — high MFE, shallow MAE — a case where the first thing to suspect is an exit that came too early.

⚠️ Caveat — This is a post-trade review tool. It doesn't lead directly to "just sell later next time." A high MFE doesn't guarantee you could have sold anywhere near that peak — we cover that trap in detail in the next article.

What This Diagnosis Can't Do

The MFE/MAE diagnosis only tells you which side to suspect first — entry or exit. It doesn't tell you "so what price should you have sold at." A high can be a price that was only touched in passing intraday, with no guarantee you could have placed an order at that exact moment. Any conclusion drawn from a single trade is heavily influenced by chance, so it's safer to confirm a repeating pattern across several trades before drawing a conclusion.

📌 Summary — Low MFE → suspect the entry · high MFE but low return → suspect the exit · the reference baseline is the population average (+14.58% / −9.85%, n=114,454). Don't decide from one trade — confirm the pattern.
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Frequently Asked Questions

What can MFE/MAE diagnose?

Whether your trade's problem was on the entry side or the exit side. If MFE (the peak) was low, the stock selection or entry timing was likely the issue to begin with. If MFE was high but your actual return was low, the exit was likely the problem.

How do I compute my own MFE/MAE?

Using your entry price as the reference, take the highest daily high during your holding period and compute (high − entry) / entry for MFE, and the lowest daily low for (low − entry) / entry as MAE. Reading the high/low off a candlestick chart in your brokerage app for the holding period is accurate enough.

What if both MFE and MAE are low?

It's more likely an entry (stock or timing selection) problem than an exit-timing problem. It means the stock simply didn't move much to begin with, and no exit rule — however well designed — would have improved that.

Is this diagnosis always correct?

No. This framework is a post-trade review aid, not a predictive tool. A conclusion drawn from a single trade (a sample of one) is heavily influenced by chance. It's safer to confirm a repeating pattern across multiple trades before drawing a conclusion.
📊
Time to Peak
The 114K-row measured baseline
🪤
MFE's Traps
The illusion that a peak means you could sell
🛑
Stop-Loss Principles
Why the exit rule matters more than the signal

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