Plain-language definitions of the terms that matter.
R is what you risk on a trade. An R-multiple expresses profit or loss as a multiple of that risk, so small and large trades compare on one scale.
Expectancy is the average R-multiple a system earns per trade. A positive number means it makes money over time, even with a low win rate.
Position sizing sets how many shares or lots to trade so a stop-out costs a fixed amount. It is the single biggest lever over survival and consistency.
Win rate is the percentage of trades that close in profit. Alone it says nothing about profitability; it only matters next to your average win and loss.
Profit factor is gross profit divided by gross loss. Above 1.0 means a system makes money; the higher it climbs, the more cushion every losing trade has.
SQN rates a trading system by combining its average R, the consistency of its results and its trade count. It rewards steady edges over lucky streaks.
Drawdown is how far your account has fallen from its peak. Max drawdown is the worst such fall and the best gauge of how much heat a system brings.
MAE is the furthest a trade moved against you before it closed. Studying it tells you whether your stop-losses are too tight, too wide, or about right.
MFE is the furthest a trade moved in your favour before it closed. Comparing it with your exit shows how much profit you leave on the table.
Risk of ruin is the chance a run of losses drains your account past recovery. Your risk per trade is the lever that controls it.
Standard deviation measures how widely your per-trade results scatter around their average, the volatility behind Sharpe and Sortino ratios.
The Sharpe ratio divides your return by how much it bounces around. It rewards smooth, consistent gains over the same return earned through wild swings.
The Sortino ratio is a refinement of Sharpe that measures return against downside volatility only. It stops rewarding you less just for having big winners.
The Calmar ratio divides your return by your worst drawdown. It shows whether a system's reward was worth the deepest hole it dug along the way.
Downside deviation measures how much your results scatter below a target — only the harmful swings. It is the engine behind the Sortino ratio.
The discipline tax is the gap between what your trades made and what they would have made had you followed your own plan. It prices indiscipline.
Overtrading is taking more trades than your edge calls for, often from boredom or revenge. Learn to spot overtrading days and what they cost you.
Conviction calibration compares how confident you felt before a trade with how it turned out, revealing whether your gut read is worth trusting.
Revenge trading is jumping back in to win back a loss, abandoning your plan. It is one of the fastest ways to turn a small loss into a large one.
An impulse trade is taken on a whim with no setup; a structured trade follows a playbook. Separating the two shows what your discipline is worth.
A streak is a run of consecutive wins or losses. Most are ordinary variance, not a change in skill, and treating them as signals is a costly mistake.