Drawdown and risk limits
Maximum adverse excursion
The furthest a trade moves against you before it closes, whatever its final result. Measured per trade, it shows how much room a strategy genuinely needs rather than how much it eventually used.
Also called: MAE
GFN’s figure
Because GFN monitors equity rather than closed balance, adverse excursion counts against the daily loss limit - 3% on Instant, 5% on the 1 Step and 2 Step - while the trade is still open.
In detail
Maximum adverse excursion,explained
MAE is the statistic that reconciles a profitable strategy with a failed evaluation. A trade that finishes at target after being 60 pips underwater consumed 60 pips of the daily allowance on the way, and on a live-monitored limit that low is what was tested.
Recording MAE across a sample is also the most reliable way to set a stop distance: a stop tighter than the typical adverse excursion converts winners into losers without reducing risk.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Intraday drawdown
The worst point an account reaches during a single trading day, measured from that day's starting level. It is what a daily loss limit monitored on equity actually tests, rather than where the day happens to finish.
Equity-based drawdown
A drawdown measured against live account equity, which includes the unrealised profit and loss of every open position. The breach level can be touched while a trade is still running, before anything is closed.
Stop loss
A resting order that closes a losing position at a predetermined level. It is the mechanism that turns a risk-per-trade figure into an actual limit rather than an intention.
Position size
How many lots a trade is placed in. It is calculated from the dollar amount being risked and the stop distance, not chosen first - which is the reverse of how most traders approach it.
Trade journal
A record of every trade with its reasoning, size, levels and result. It is the only way to find out whether a strategy is being followed, as distinct from whether it is working.
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