Trading glossary
Plain-English definitions of the terms that actually move your results. Each one links to the Academy course where you put it to work.
- Backtesting→
Testing a trading strategy on historical data to estimate how it would have performed.
- Deflated Sharpe ratio→
A Sharpe ratio corrected for the number of strategy variations you tried.
- Drawdown→
The peak-to-trough drop in your account equity, usually shown as a percentage.
- Edge→
A repeatable reason your trades make money over a large sample.
- Expectancy→
The average amount you can expect to win or lose per trade over many trades.
- FOMO (fear of missing out)→
Chasing a move you didn't plan, driven by the fear of being left behind.
- Leverage→
Using borrowed capital to control a position larger than your cash balance.
- Liquidity→
How easily an instrument can be traded without moving its price.
- Margin→
The collateral your broker requires to open and hold a leveraged position.
- Maximum drawdown→
The largest peak-to-trough equity decline over a period.
- Overfitting→
Tuning a strategy so tightly to past data that it fails on new data.
- Position sizing→
Deciding how large a trade to take so a single loss can't hurt you badly.
- Profit factor→
Gross profit divided by gross loss — how many dollars you make per dollar lost.
- R-multiple→
A trade's result measured in multiples of the amount you risked.
- Revenge trading→
Trying to win back a loss immediately by taking impulsive, oversized trades.
- Risk:reward→
The ratio of how much you stand to make versus how much you risk on a trade.
- Sharpe ratio→
Return earned per unit of volatility — a measure of risk-adjusted performance.
- Slippage→
The difference between the price you expected and the price you actually got.
- Stop-loss→
A pre-set exit that caps the loss on a trade if price moves against you.
- Take-profit→
A pre-set order that closes a trade once it reaches your target.
- Volatility→
How much and how fast a market's price moves over time.
- Win rate→
The percentage of your trades that close in profit.
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Definitions get you started. The Academy plus your own journal turn them into an edge.
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