Trading Glossary

Clear definitions of trading terms. Every entry includes the formula, a real example, and a link to the calculator.

ATR (Average True Range)

ATR measures average price volatility over a period. It's used to size stops dynamically — a volatile stock needs a wider stop, a quiet stoc...

Drawdown is the peak-to-trough decline in account value, expressed as a percentage. A 20% drawdown requires a 25% gain to recover. Drawdowns...

Expectancy is the average dollar amount you can expect to win or lose per trade over time. Positive expectancy means the strategy is profita...

The Kelly Criterion is a formula for determining optimal position size based on the probability of winning and the win/loss ratio. It maximi...

Position sizing is the practice of determining how many shares or contracts to trade based on account size and risk tolerance. The standard ...

Profit factor is the ratio of total profits to total losses. Above 1.0 is profitable, above 1.5 is good, above 2.0 is excellent. It's a sing...

Risk/reward ratio compares potential loss to potential gain on a trade. A 1:3 ratio means risking $1 to make $3. Higher ratios allow lower w...

The Sharpe Ratio measures risk-adjusted return by dividing excess return over the risk-free rate by standard deviation of returns. Higher is...

A stop loss is a pre-determined exit price that limits loss on a losing trade. It's the foundation of position sizing and risk management — ...

Win rate is the percentage of trades that end in profit. Alone it's meaningless — a 90% win rate can still lose money if losses are larger t...