Trading Concepts, Setups & Trade Management
The order, the risk, and the styles used to act on a chart. 33 topics.
Long Position
A position that profits if the price rises, usually created by buying first and selling later.
Short Position
A position that profits if the price falls, usually created by selling an instrument you will buy back later.
Entry Price
The price at which your order is filled, the number the rest of the trade is measured from.
Exit Price
The price at which the position is closed, whether by target, stop, or a manual order.
Stop Loss
A pre-set price at which a losing position is closed, defining the trade's invalidation.
Trailing Stop Loss
A stop that moves in the trade's favour as price advances, and does not move back.
Take Profit
A pre-set price at which a winning position is fully or partly closed.
Risk-to-Reward Ratio
The planned profit of a trade divided by the planned loss if the stop is hit.
Position Sizing
Choosing how many shares or contracts to trade so that the stop, if hit, loses a predetermined amount.
Risk Management
The set of limits that keep one trade, one day, and one idea from doing unacceptable damage to the account.
Trade Setup
A repeatable set of conditions that defines a trade: context, trigger, invalidation, and target.
Breakout Trading
Entering in the direction of a move that leaves a defined range or level.
Breakdown Trading
Entering short, or exiting longs, as price leaves a defined floor.
Pullback Trading
Entering in the direction of an existing trend after a temporary move against it.
Reversal Trading
Entering against the prior swing at a location where that swing shows evidence of failing.
Momentum Trading
Buying what is already moving in a direction, or selling what is already falling, and exiting when the movement stalls.
Swing Trading
Holding for a move that lasts more than a session and less than a long-term investment, typically days to a few weeks.
Intraday Trading
Opening and closing positions inside the same session, so the overnight gap is not held.
Scalping
Taking very short-term trades for small moves, with holding times from seconds to a few minutes.
Positional Trading
Holding for the larger trend, typically weeks to months, and ignoring minor swings.
Gap Trading
Trading the price discontinuity between one session's close and the next session's open.
Gap Up
An open above the prior session's high, or more loosely above the prior close.
Gap Down
An open below the prior session's low, or more loosely below the prior close.
Opening Range Breakout (ORB)
A trade in the direction of a break of the range formed during a fixed window after the open.
Range Trading
Buying the lower end of a sideways range and selling the upper end, until the range breaks.
Trend Following
Staying with a trend until a defined break, rather than predicting the turn.
Mean Reversion
Betting that a stretch away from a recent average or range will snap back.
Pyramid Trading
Adding to a position as it moves in your favour, so the largest size is held only after the trade has proved itself.
Averaging
Adding to a position that is losing, so the average entry moves closer to the current price.
Partial Profit Booking
Closing part of a position at a target and leaving the rest under a trail or a later target.
Trading Psychology
The habits of attention, fear, and ego that change a written plan in real time.
Trading Discipline
Following the written rules of risk, entry, and exit for a full sample, including the trades that feel wrong.
Overtrading
Taking more trades, or larger trades, than the plan allows, usually from boredom, loss, or a hot streak.