Trading Glossary: Journal, Metrics, Risk and Psychology Terms
Every term a trading journal throws at you, defined in one sentence and then worked through: the formula where there is one, a numeric example, how to read it, and where SetupBook shows it. Written for traders, not for exams.
40 terms
Performance metrics
- Breakeven trade
- A trade whose net result falls inside a small band around zero, so it is counted as neither a win nor a loss.
- Consistency
- How evenly your results are spread: usually measured as the share of trading days that ended in profit.
- Drawdown
- How far your account has fallen from its highest point, in money or as a percentage of that peak.
- Equity curve
- A line of your account balance after every closed trade, from the starting balance onwards.
- Exit efficiency
- The share of a trade's price range, from its worst point to its best, that your exit actually captured.
- Expectancy
- The average result of one trade, in money or in R, before you know whether it will win or lose.
- MAE and MFE
- Maximum adverse excursion (MAE) is the furthest a trade went against you; maximum favorable excursion (MFE) is the furthest it went in your favour.
- Net P&L
- The profit or loss of a trade after commissions, exchange fees and swaps are taken out.
- Payoff ratio
- Your average winning trade divided by your average losing trade; with the win rate it decides whether a strategy makes money.
- Profit factor
- Gross profit divided by gross loss: how many dollars your winners made for every dollar your losers cost.
- R-multiple
- A trade's result divided by the amount you risked at entry, so +2R means you made twice what you were prepared to lose.
- Sample size
- The number of trades a statistic is computed from; below about 30 trades most trading metrics are noise.
- Win rate
- The share of your closed trades that made money, counted without the trades that ended near zero.
Risk and position size
- Lot
- The standard unit of trade size in forex and CFDs; one standard lot is 100,000 units of the base currency.
- Pip
- The standard unit of price movement in forex: 0.0001 for most currency pairs and 0.01 for pairs quoted in Japanese yen.
- Position size
- How many lots, contracts, shares or coins you trade, chosen so that hitting the stop loses a planned amount.
- Risk per trade
- The share of your account you accept to lose on a single trade if the stop is hit, often between 0.5% and 2%.
- Risk-reward ratio
- The potential profit of a trade divided by its potential loss, usually written as 1:2 or simply 2.
- Stop loss
- The price at which you exit a trade that is going against you; its distance from the entry defines your risk.
- Take profit
- The price at which you plan to close a winning trade and bank the profit.
Execution and process
- Pre-trade checklist
- A short list of conditions you confirm before entering a trade, so the decision follows your rules rather than your mood.
- Scaling in
- Building a position in several entries instead of one, so the trade has an average entry price.
- Scaling out
- Closing a position in several parts, for example half at the first target and the rest later, instead of all at once.
- Slippage
- The difference between the price you expected for an order and the price at which it was actually filled.
- Trading playbook
- The written collection of setups you trade, each with its rules, an example and its own track record.
- Trading sessions
- The parts of the 24-hour trading day named after the financial centre that is open: Asia, London and New York.
- Trading setup
- A repeatable market situation with defined rules for when to enter, where the stop goes and where to take profit.
Prop firms
- Daily loss limit
- The most an account is allowed to lose in a single trading day before trading must stop.
- Prop firm
- A proprietary trading firm that lets traders trade its capital, usually after passing a paid evaluation with a profit target and loss limits.
- Trailing drawdown
- A maximum loss limit that follows the account's highest point upwards, so the floor rises as you make money and never comes down.
Psychology and discipline
- FOMO
- Fear of missing out: entering a trade late or without a setup because the market is moving without you.
- Moving the stop
- Moving a stop loss further away after entry to avoid being stopped out, which turns a planned loss into a larger one.
- Overtrading
- Taking more trades than your strategy calls for, usually out of boredom, frustration or the need to be in the market.
- Revenge trading
- Taking an unplanned, often oversized trade right after a loss in order to win the money back quickly.
- Tilt
- A state of frustration, usually after losses, in which decisions get worse and rules get broken.
- Trading discipline
- Following your own trading rules on every trade; measurable as the share of trades taken without breaking a rule.
- Trading psychology
- How your emotional and physical state (stress, fear, sleep, energy) shapes the decisions you make while trading.
Journaling
- Mistake cost
- The net result of all trades on which you broke one of your rules, so each habit has a price in money.
- Trading journal
- A record of every trade you take, with the plan, the execution, the result and the context, kept so you can find out what works.
- Weekly review
- A fixed, short session at the end of each week where you read your journal and decide one thing to change.