Risk terms, defined plainly
Short, jargon-free definitions for the words used across these lessons. Where a term has a lesson behind it, the entry points to the page that develops it.
Risk management
The discipline of deciding, in advance, how much you stake, where you exit a losing trade, and how deep a loss you can survive - the part of trading you control, as opposed to the forecast, which you do not.
Position sizing
Choosing how much of your account a single trade may risk, so that no one position can do outsized damage; widely treated as the master skill of trading risk. See: how to size a position.
Defined stop
A pre-decided price at which you admit the idea was wrong and close the trade, set at entry while you are calm rather than chosen in the middle of a loss. See: a defined stop.
Drawdown
The deepest peak-to-trough fall in an account or strategy over a period - the most honest measure of risk, because it shows how bad things actually got. See: a drawdown limit you obey.
Recovery arithmetic
The fact that the gain needed to undo a loss grows faster than the loss itself: a 20% loss needs +25% to recover, a 50% loss needs +100%. See: the recovery ladder.
Risk of ruin
The probability that a string of losses wipes out an account before its edge can play out; small per-trade risk is the main defence against it.
Risk-reward ratio
The size of the planned gain on a trade compared with the size of the loss risked to get it; a strategy can win less than half its trades and still profit if this ratio is high enough.
Conviction grade
An A-to-D label marking how strongly a system rates a call relative to its own measured return distribution; because it scales how much a position deserves, it doubles as a pre-committed sizing signal. There is no E grade. See: sized positions.
Win rate
The share of trades that closed profitably - meaningful only alongside the total trade count and the average win against the average loss.
Cryptographic timestamp
A hash of a call written to a public ledger at publication, proving the entry, target, stop and grade existed in that exact form before the outcome was known. See: how to check a risk system.
Systematic approach
An approach whose risk rules are fixed in advance and applied mechanically, so the record reflects the rules rather than the trader's mood on a given day.
Overnight risk
The danger that news arriving while a market is closed gaps the price straight past a stop - a hazard for any position carried beyond a single session.