Archives

Never risk more than 1% of account equity on a single trade — the most widely-quoted retail money management rule.

A volatility measure — the average distance price travels per period, accounting for gaps.

Moving your stop-loss to the entry price once the trade is in profit — risk-free from that point on.

Reinvesting profits so the next period's return is earned on a larger base — the mechanism behind exponential equity curves.

Statistical measure (−1 to +1) of how two instruments move together. +1 = perfect lockstep, −1 = perfect opposites, 0...

Spreading capital across uncorrelated positions to reduce overall portfolio risk.

The decline from a peak in equity to a subsequent trough — measured in percent or dollars.

A chart of account balance over time — the single most informative view of strategy health.

The average profit per trade, computed from win rate and average win/loss size.

Holding offsetting positions to reduce risk — e.g. long EUR/USD and short EUR/GBP to neutralise EUR exposure.

A formula that calculates the bet size which maximises long-run growth given your edge and odds.

The largest peak-to-trough equity decline seen in a strategy's history — a key risk metric.

The process of choosing how many lots to trade based on your account size, stop distance, and risk per trade.

Total gross profits divided by total gross losses — a single number summary of strategy quality.

The probability that an account will lose enough to be unrecoverable, given a strategy's win rate and risk per trade.

The maximum dollar (or percent) amount you allow yourself to lose on a single trade.

The ratio of potential profit to potential loss on a trade — e.g. 2:1 means risking $1 to make $2.

A risk-adjusted return metric: excess return divided by standard deviation of returns.

Like Sharpe but only penalises downside volatility — a better measure for asymmetric strategies.

A pre-set order that closes a losing trade automatically at a maximum acceptable loss.

A pre-set limit order that closes a winning trade automatically when price reaches your target.

A stop-loss that automatically follows price in your favour, locking in profit as the trade moves.

An estimate of the worst expected loss over a given period at a given confidence level — e.g. '1-day 95%...

The degree of price variation in a given period — high volatility = big swings, low volatility = quiet markets.

The percentage of trades that close in profit — winners divided by total closed trades.