What is the purpose of measuring maximum loss in Maximum Adverse Excursions (MAE)?

The purpose of measuring maximum loss in Maximum Adverse Excursions (MAE) is to analyze the worst performance of a trade. MAE specifically focuses on the maximum drawdown experienced against a position before it turns profitable or is closed. By identifying the worst-case scenario for the trade, traders can understand the potential risks involved and evaluate their exposure to losses. This assessment helps in refining entry and exit strategies, risk management, and identifying the appropriate stop-loss levels to protect against significant adverse movements in price. Understanding the worst performance aids in making more informed trading decisions and improving overall trading strategies.

The other choices don't align with the core function of MAE measurement. For instance, potential profit margins focus on expected gains rather than losses. Average performance over time does not directly consider the extreme cases of loss but rather looks at overall trends. Assessing overall market stability is broader and not specific to trade performance, making it less relevant in the context of MAE.