Journaling & Metrics • Simulated Paper Trading

Maximum Adverse Excursion MAE In Paper Trading for Paper Trading

Quantitative Framework, Technical Execution Rules, and Diagnostic Journaling

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Executive Definition & Core Answer

Maximum Adverse Excursion (MAE) measures the largest peak unrealized drawdown suffered by a trade before closing, while Maximum Favorable Excursion (MFE) measures the peak unrealized profit achieved during its lifespan. Tracking MAE and MFE in paper trading optimizes stop-loss placement by revealing unnecessary heat, and diagnoses premature exits by measuring profit capture ratios.

This analysis is part of the SlateTick paper trading platform and trade execution journal, designed to calibrate execution discipline, risk modeling, and multi-asset simulation across Equities, Forex, and Crypto without risking live capital.
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Structured Trade Logging Protocol for Maximum Adverse Excursion (MAE)

Step-by-step institutional rules and quantitative procedure

1 Tick-by-Tick Low Capture

Establish calibrated baseline parameters and execution thesis for Maximum Adverse Excursion (MAE). Record the absolute worst price reached against your entry while the position was active.

2 MAE Adverse Delta

Calculate MAE = (Entry Price - Lowest Price reached) for long positions.

3 Stop-Loss Cushion Comparison

Compare adverse excursion against initial technical stop-loss distance (1.0R).

4 Clustering Analysis

Plot MAE distribution across 40 trades to identify whether stops are set unnecessarily wide.

5 Optimal Invalidation Adjustment

Conduct weekly cohort audits and system reviews for Maximum Adverse Excursion (MAE). Tighten stops to just beyond the 90th percentile MAE to increase position sizing efficiency.

Trade Journal Cohort Sample: Apple Inc. (AAPL)

Precise formula and quantitative position-sizing model

Formulation & Proof $100k Virtual Capital Sizing
Simulated Account: $100,000 virtual balance. Baseline Risk (1.0R): $1,000. Trade Model: Maximum Adverse Excursion (MAE) on Apple Inc. (AAPL). AAPL Long Breakout Sample (30 Trades): - Planned Entry: $225.00 | Planned Stop: $222.50 ($2.50 stop distance / 400 shares) - Average Observed MAE: -$1.15 (-0.46R) - 90th Percentile MAE: -$1.55 (-0.62R) MAE Optimization Proof: - Current Stop: $2.50 risk -> 400 shares @ $225.00 ($1,000 risk) - Optimized Stop: $1.80 risk ($1.55 MAE + $0.25 buffer) -> 555 shares @ $225.00 ($1,000 risk) - Result: Position size increases by 38.7% with zero increase in dollar risk, increasing cohort Net P&L from +$14,200 to +$19,700.

By calculating position size strictly based on the distance between your entry price and technical invalidation level, your risk remains fixed at 1.0R ($1,000) regardless of the asset's nominal price. To simulate and log your orders under real-world spread and slippage dynamics, explore the core paper trading simulation workspace.

Execution & Journaling Checklist

Mandatory trade management and discipline verifications

✓
Verify all pre-trade parameters for Maximum Adverse Excursion (MAE) meet written playbook criteria.
✓
Normalize MAE in fractions of 1.0R risk.
✓
Identify positions that experienced > 0.80R adverse excursion before winning.
✓
Conduct weekend diagnostic review of all Maximum Adverse Excursion (MAE) executions in journal.
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Frequently Asked Questions

Essential inquiries on execution, verification, and journal analytics

Q1: Why is Maximum Adverse Excursion (MAE) critical for simulated paper trading?

MAE reveals how much heat a trade took before closing. It pinpoints whether your stop-losses are set too wide (wasting size) or too tight (causing premature stopouts).

Q2: How does MAE improve position sizing?

By identifying that trades rarely pull back more than 0.6R, you can tighten stops closer to actual invalidation, allowing larger share sizes for the same dollar risk.

Q3: How does SlateTick support Maximum Adverse Excursion (MAE)?

Yes, SlateTick's simulated execution engine records tick-level high and low data throughout the life of every paper order to log MAE and MFE.

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Maximum Adverse Excursion MAE In Paper Trading for Paper Trading

Maximum Adverse Excursion (MAE) measures the largest peak unrealized drawdown suffered by a trade before closing, while Maximum Favorable Excursion (MFE) measures the peak unrealized profit achieved during its lifespan. Tracking MAE and MFE in paper trading optimizes stop-loss placement by revealing unnecessary heat, and diagnoses premature exits by measuring profit capture ratios.

Simulated Account: $100,000 virtual balance. Baseline Risk (1.0R): $1,000. Trade Model: Maximum Adverse Excursion (MAE) on Apple Inc. (AAPL). AAPL Long Breakout Sample (30 Trades): - Planned Entry: $225.00 | Planned Stop: $222.50 ($2.50 stop distance / 400 shares) - Average Observed MAE: -$1.15 (-0.46R) - 90th Percentile MAE: -$1.55 (-0.62R) MAE Optimization Proof: - Current Stop: $2.50 risk -> 400 shares @ $225.00 ($1,000 risk) - Optimized Stop: $1.80 risk ($1.55 MAE + $0.25 buffer) -> 555 shares @ $225.00 ($1,000 risk) - Result: Position size increases by 38.7% with zero increase in dollar risk, increasing cohort Net P&L from +$14,200 to +$19,700.