Trading glossary
91 trading terms explained in plain English, with the formula where one exists and a note on why it matters in a journal.
Performance metrics
Expectancy
The average profit or loss you can expect from each trade over a large sample.
Profit factor
Gross profit divided by gross loss.
Win rate
The share of your trades that close in profit.
Average win
Total profit from winning trades divided by the number of winning trades.
Average loss
Total loss from losing trades divided by the number of losing trades.
MAE (Maximum Adverse Excursion)
How far a trade moved against you before it closed.
MFE (Maximum Favourable Excursion)
How far a trade moved in your favour before it closed.
Equity curve
A running chart of your account balance trade by trade.
Sharpe ratio
Return per unit of total volatility.
Sortino ratio
Return per unit of downside volatility only.
Calmar ratio
Annual return divided by maximum drawdown.
Backtesting
Testing a strategy against historical price data.
Forward testing
Running a strategy on live data before committing real capital.
Sample size
The number of trades behind a statistic.
Edge
A repeatable reason your trades make more than they lose.
Trade journal
A structured record of every trade with the metrics that reveal your edge.
Trading KPIs
The handful of numbers you track to know if your trading is on plan.
Risk
R multiple
A trade result expressed as a multiple of the amount you risked.
Risk-reward ratio
The size of your planned target compared with the size of your stop.
Position sizing
Choosing how many shares, contracts or lots to trade based on your stop distance and risk budget.
Drawdown
The decline from a peak in your equity curve to the following trough.
Maximum drawdown
The largest peak-to-trough decline in your account history.
Kelly criterion
A formula for the mathematically growth-optimal bet size.
Risk of ruin
The probability of losing enough capital that you can no longer trade.
Risk per trade
The share of your account you lose if the stop is hit.
Leverage
Controlling a position larger than your deposited capital.
Margin call
A demand to add funds or reduce positions when equity falls below requirements.
Pattern day trader rule
A US rule requiring $25,000 equity for accounts making four or more day trades in five business days.
Wash sale
A tax rule disallowing a loss when you rebuy the same security within 30 days.
Risk management
The rules that decide how much you can lose per trade, per day and per month.
Correlation
How closely two instruments move together.
Hedging
Taking an offsetting position to reduce exposure.
Prop firms
Trailing drawdown
A drawdown limit that moves upward as your account makes new highs.
Daily loss limit
The maximum you can lose in one trading day before the account is breached.
Profit target
The gain required to pass an evaluation phase.
Consistency rule
A requirement that no single day makes up more than a set share of total profit.
Payout split
The share of profits a funded trader keeps.
Evaluation account
A simulated account you trade to prove you can follow risk rules.
Funded account
The live or simulated account you trade after passing an evaluation.
Scaling plan
The schedule that increases your allowed size as the account grows.
Order types
Market order
An instruction to buy or sell immediately at the best available price.
Limit order
An order to trade at a specified price or better.
Stop loss
A resting order that exits a position once price reaches a set level.
Stop limit order
A stop that triggers a limit order rather than a market order.
Trailing stop
A stop that follows price by a fixed distance as the trade moves in your favour.
Bracket order
An entry paired with an attached stop loss and profit target.
OCO order
Two linked orders where filling one cancels the other.
Break-even stop
Moving your stop to the entry price once a trade moves in your favour.
Partial exit
Closing part of a position while letting the rest run.
Market structure
Slippage
The difference between your expected fill price and the price you actually get.
Spread
The gap between the best bid and the best ask.
Liquidity
How much size a market can absorb without moving price.
Volatility
How much price moves over a given period.
ATR (Average True Range)
The average size of a bar's full range over a lookback period.
VWAP
The volume weighted average price traded so far in a session.
Order flow
The live stream of orders and executions hitting the book.
Gap
A price jump between one session close and the next open with no trading in between.
Commission
The fee your broker charges per trade or per contract.
Round turn
A completed trade consisting of an entry and a matching exit.
Settlement
The date funds and securities actually change hands.
Pre-market
Trading before the regular session opens.
After-hours trading
Trading after the regular session closes.
Trading session
The defined hours a market is actively traded, such as London or New York.
Opening range
The high and low of the first minutes of a session.
Support and resistance
Price areas where previous buying or selling stopped a move.
Trend
A sustained directional bias in price.
Range-bound market
A market oscillating between defined boundaries with no net direction.
Liquidity sweep
A quick push through an obvious level that triggers resting stops before reversing.
Stop hunting
Price moving toward clusters of resting stop orders.
Psychology
Overtrading
Taking more trades than your plan justifies.
Revenge trading
Taking a trade to recover a loss rather than because the setup appeared.
FOMO
Entering late because a move is already running without you.
Tilt
Trading while emotionally compromised after a loss or a big win.
Trading discipline
Executing your plan the same way whether the last trade won or lost.
Trading plan
A written description of what you trade, when, at what size and when you stop.
Scalping
Taking many very short trades for small gains.
Swing trading
Holding trades for days to weeks to capture larger moves.
Position trading
Holding for weeks to months on a macro or fundamental thesis.
Paper trading
Simulated trading with no real money at risk.
Trade review
A scheduled look back at recent trades against your plan.
Instruments
Tick value
The dollar value of the smallest price increment of a contract.
Pip
The standard smallest price move in a currency pair, usually 0.0001.
Lot size
The trade unit in forex: 100,000 units for a standard lot.
Contract specifications
The exchange definition of a futures contract: size, tick, hours and expiry.
Micro futures contracts
Smaller versions of standard futures contracts, typically one tenth the size.
Options greeks
Sensitivities of an option price to price, time, volatility and rates.
Implied volatility
The volatility the market is pricing into an option.
Theta decay
The loss of option value as expiry approaches.
Assignment
Being required to fulfil an option contract you sold.
Perpetual futures
Crypto derivatives with no expiry, kept near spot by funding payments.
Funding rate
The periodic payment between long and short holders of a perpetual contract.
Keep reading
Trading journal guides
Expectancy, profit factor, drawdown, backtesting and the PDT rule.
Free trading calculators
Position size, risk-reward, expectancy and options profit.
Expectancy calculator
Expected profit per trade from your own numbers.
Broker CSV export guides
Step-by-step exports for Tradovate, NinjaTrader, IBKR and more.