Glossary
Every term, explained
Pecunie shows numbers like expectancy, portfolio heat, and Kelly f* next to your own trades. This is what each one measures, how to read it, and — where one exists — the formula behind it. None of this is investment advice; see the disclaimer.
Sizing and risk
- RYour dollar risk per share on a trade — the unit every other risk figure is measured in.
- Risk per shareHow much you lose per share if the stop is hit: the distance from entry to stop, in dollars.
- Dollar riskThe maximum you're risking on this trade, in dollars: equity times your risk-per-trade limit.
- Position sizeThe number of shares a plan sizes to, given entry, stop, and your risk budget.
- Position costThe total dollar amount spent to open the position: shares times entry price.
- Account equityThe total value of your account, used as the base for every percentage-based risk limit.
- Max risk per tradeThe share of account equity a single trade is allowed to risk, set in your risk profile.
- Max position sizeThe largest share of account equity a single position's cost is allowed to reach.
- Max portfolio heatThe ceiling on total open risk across every open position at once, as a percentage of equity.
- Max sector exposureThe cap on how much of the account can sit in positions from a single sector at once.
- Portfolio heatTotal open risk across every open position, as a percentage of account equity.
- Open riskThe dollar risk still live on an open position: shares times the distance from entry to the current stop.
- % of equityWhat share of your account this position's cost represents.
- Long vs. shortWhether a plan profits from a rising price (long) or a falling price (short).
Stops and targets
- Stop lossThe price at which a plan exits automatically to cap the loss on a position.
- Fixed stopA stop set at one specific price, chosen directly rather than derived from a formula.
- Percent stopA stop set a fixed percentage below (long) or above (short) the entry price.
- ATR stopA stop placed a multiple of Average True Range below (long) or above (short) entry.
- Below swing lowA stop placed just under the lowest low (long) or highest high (short) of a recent window.
- Chandelier stopA trailing stop set below the highest high of a lookback window, minus a multiple of ATR.
- Trailing stopA stop that only moves in the direction that reduces risk, never back toward entry.
- Breakeven stopMoving the stop to the entry price so the position can no longer lose money.
- TargetA planned exit price where some or all of a position is meant to be closed for a profit.
- R-multiple targetA target defined as a multiple of R rather than a fixed price, e.g. 2R.
- Scale outClosing a position in pieces across multiple targets instead of all at once.
- InvalidationThe condition under which a plan's premise is wrong, independent of where the stop sits.
- Arming a planLocking in a plan's entry, stop, and size so it can be monitored against live prices.
Indicators
- ATRAverage True Range — a measure of an instrument's typical volatility, in price units.
- True rangeThe largest of a bar's own high-low range and its distance from the prior close.
- SMASimple Moving Average — the average closing price over the last N bars.
- EMAExponential Moving Average — weights recent bars more heavily, so it reacts faster than an SMA.
- RSIRelative Strength Index — a 0-100 oscillator measuring how fast and how far price has moved recently.
- MACDMoving Average Convergence/Divergence — the gap between two EMAs, used to read momentum shifts.
- Bollinger BandsA band around a moving average, its width set by recent price standard deviation.
- TimeframeThe duration each bar represents — a minute, an hour, a day — that every indicator is computed on.
- CrossoverThe moment one line — a moving average, an indicator — crosses above or below another.
Performance metrics
- R-multipleA trade's profit or loss expressed as a multiple of the risk that was taken, e.g. +2R.
- Realized RThe actual R-multiple a closed trade produced, based on its exit price relative to R.
- Win rateThe share of closed trades with a positive realized R.
- Average win (R)The average realized R across only the trades that closed positive.
- Average loss (R)The average realized R, as a positive number, across only the trades that closed negative.
- ExpectancyThe average R you'd expect to make per trade, given your win rate and average win/loss size.
- Rolling expectancyExpectancy recomputed over a moving window of your most recent trades, not your full history.
- Profit factorTotal gross profit divided by total gross loss, across all closed trades.
- Max drawdownThe largest peak-to-trough decline in account equity over the period measured.
- Sharpe ratioAverage return divided by the volatility of that return, annualized.
- Total returnThe percentage change in equity from the start to the end of the period measured.
- R-distributionA histogram of realized R values across closed trades, showing the shape of outcomes.
- Kelly criterionA formula for the fraction of capital that maximizes long-run growth, given win rate and payoff ratio.
- Fractional KellyA quarter of the full Kelly result, shown to reduce the swings full Kelly implies.
- Sample size gateThe minimum number of trades — 30 — required before a statistic like Kelly is shown at all.
Backtesting
- BacktestRunning a plan's rules against historical price data to see what it would have produced.
- Parameter sweepRunning the same backtest across a range of rule parameters to see how results change.
- OverfittingTuning rules until they fit historical data well, in a way that doesn't hold up on new data.
- Out-of-sampleData not used to design or tune a rule set, held back to test it honestly afterward.
- Walk-forward testingRepeatedly tuning on one period and testing on the next one forward, then rolling ahead.
- SlippageThe difference between the price a rule intends to fill at and the price it actually fills at.
- CommissionThe per-trade fee a backtest subtracts from results, to avoid overstating profitability.
- Look-ahead biasA backtest error where a rule uses information that wouldn't have been available yet.
Adherence
- Adherence scoreA 0-100 score measuring how closely a closed trade followed its own plan.
- Entry slippageHow far your actual fill price was from the plan's planned entry price.
- Honored stopWhether a losing trade's exit price was actually at or near the planned stop.
- Stop widenedWhether the stop was moved further from price after the plan was armed — the one move adherence never rewards.
- Size deviationHow far the shares you actually opened with differed from the plan's sized share count.
- Adherence-P&L correlationThe statistical relationship between how closely trades followed their plans and how they performed.
- Correlation coefficientA −1 to +1 measure of how closely two things move together; 0 means no linear relationship.
Projections
- CompoundingEarning returns on both your original contributions and on returns already earned.
- Future valueWhat a stream of contributions is projected to be worth after compounding for N years.
- Contribution escalationIncreasing your contribution amount by a fixed percentage each year, rather than a flat amount.
- Nominal vs. realNominal is the dollar amount projected; real is that amount adjusted down for inflation.
- InflationThe rate at which prices rise over time, which erodes the purchasing power of a fixed dollar amount.
- Expected returnThe annual return assumption a projection is built on — an input you choose, not a guarantee.
- Monte Carlo simulationRunning thousands of possible return paths, sampled from historical data, to show a range of outcomes.
- Percentile band (p10 / p50 / p90)p10 is a worse-than-90%-of-paths result, p50 the median, p90 better-than-90%-of-paths.
- Sequence-of-returns riskThe risk that the order returns arrive in — not just their average — affects your final balance.
- CAGRCompound Annual Growth Rate — the single constant yearly return that explains a start-to-end change.
- Capital gains tax dragThe reduction in effective return caused by taxes owed on investment gains in a taxable account.
Instruments
- ETFExchange-Traded Fund — a fund holding a basket of assets that trades on an exchange like a stock.
- ETF proxyAn ETF used to represent exposure to a commodity or asset that isn't directly tradable as a stock.
- ContangoA futures market condition where longer-dated contracts trade at a higher price than near-term ones.
- Roll dragThe tracking-error cost a futures-based ETF accumulates from repeatedly rolling contracts forward in contango.
- Market hoursThe window during which an exchange is open and an instrument trades at live, exchange-matched prices.
- Bid-ask spreadThe gap between the highest price a buyer will pay and the lowest price a seller will accept.
- Delayed dataA price shown as it stood some minutes ago, not the current live price on the exchange.
- Price limitA daily cap on how far an exchange lets a price move, up or down, from its prior close.
- Volatility haltA trading pause an exchange triggers when a price moves unusually fast, independent of any price limit.
Company fundamentals
- RevenueThe total amount a company earned from selling its goods or services, before any costs are subtracted.
- Market capThe total market value of a company's outstanding shares: share price times shares outstanding.
- P/E ratioPrice-to-earnings ratio — a company's share price divided by its earnings per share.
- Gross marginGross profit as a percentage of revenue — what's left after the direct cost of producing what was sold.
- Operating marginOperating income as a percentage of revenue — profit from core operations, before interest and taxes.
- Net marginNet income as a percentage of revenue — what's left for shareholders after every expense, interest, and tax.
- Return on equityNet income as a percentage of shareholders' equity — how efficiently a company turns invested capital into profit.
- Debt-to-equityTotal debt divided by shareholders' equity — how much a company relies on borrowing versus its own capital.
- Operating expensesThe costs of running a business beyond the direct cost of producing what it sells — sales, R&D, administration.