Glossary
The vocabulary, defined honestly.
38 terms across market structure, prop firms, risk and psychology — defined plainly, including where the evidence behind a popular concept is thinner than the people selling it admit.
Market structure & SMC
Break of structureBOSA break of structure (BOS) is when price closes beyond a prior swing high or low, continuing the existing trend direction — a higher high in an uptrend, or a lower low in a downtrend.Change of characterCHoCHA change of character (CHoCH) is the first break of structure against the prevailing trend — the point at which an uptrend first makes a lower low, or a downtrend first makes a higher high.Fair value gapFVGA fair value gap (FVG) is a three-candle pattern where the first and third candles' wicks do not overlap, leaving a price range that traded through quickly — interpreted as an imbalance price may later return to fill.ICT (Inner Circle Trader)Inner Circle TraderICT refers to the Inner Circle Trader, a widely followed trading educator whose terminology — order blocks, fair value gaps, liquidity pools, killzones — became the foundation of much of what is now taught as Smart Money Concepts.Liquidity sweepstop huntA liquidity sweep is a move that pushes briefly beyond an obvious high or low — triggering stop orders resting there — before reversing back in the opposite direction.Market structureprice structureMarket structure is the pattern of successive highs and lows on a price chart, used to describe whether a market is trending up, trending down, or ranging.Order blockAn order block is the last opposing candle before a sharp move away from a level, treated in Smart Money Concepts as an area where institutional orders were placed and where price may react if it returns.Smart Money ConceptsSMCSmart Money Concepts (SMC) is a retail trading framework built on the premise that institutional participants move price to access liquidity, using ideas such as order blocks, liquidity sweeps, fair value gaps and market structure shifts.
Prop firms & funded accounts
Consistency ruleA consistency rule is a prop firm requirement that no single trading day or trade may account for more than a set percentage of total profit, preventing a trader from passing an evaluation on one outsized win.Funded accountA funded account is a trading account backed by a prop firm's capital rather than the trader's own, granted after passing an evaluation, and governed by loss limits and rules the trader must keep to in order to retain it.Profit splitA profit split is the share of trading profits a funded trader keeps, with the remainder going to the prop firm — commonly ranging from 50% to 90% in the trader's favour.Prop firmproprietary trading firmA proprietary trading firm gives traders access to the firm's capital to trade, splitting any profits. Modern retail prop firms typically grant that access only after a trader passes a paid evaluation with defined profit targets and loss limits.Prop firm challengeevaluationA prop firm challenge is the paid evaluation a trader must pass to obtain a funded account, typically requiring a profit target to be reached without breaching a maximum drawdown or daily loss limit.
Risk & position sizing
BacktestingBacktesting is applying a set of trading rules to historical price data to estimate how the strategy would have performed, in order to assess it before risking capital.ExpectancyExpectancy is the average amount a strategy wins or loses per trade, calculated as (win rate × average win) − (loss rate × average loss). Positive expectancy means the strategy gains on average over many trades.LeverageLeverage allows a trader to control a position larger than their deposited capital, expressed as a ratio such as 30:1 — magnifying both gains and losses proportionally.Maximum drawdownmax drawdownMaximum drawdown is the largest peak-to-trough decline in an account's value, expressed as a percentage of the peak — a measure of the worst loss experienced from a high-water mark.Position sizingPosition sizing is the calculation determining how large a trade should be, derived from account size, the percentage of capital risked, and the distance between entry and stop-loss.Risk of ruinRisk of ruin is the probability that an account loses enough capital to be unable to continue trading, given a particular win rate, average win/loss size, and risk taken per trade.Risk-reward ratioR:RRisk-reward ratio compares the amount risked on a trade to the amount targeted — a trade risking $100 to make $300 has a 1:3 risk-reward ratio.Stop-lossA stop-loss is a pre-set order that closes a position once price reaches a defined level, capping the loss on that trade at a known amount.
Psychology & behaviour
Equity curveAn equity curve is a chart of an account's value over time, used to visualise growth, drawdowns and consistency across a sequence of trades.FOMO (fear of missing out)fear of missing outFOMO in trading is entering a position late, after a move is already underway, driven by the fear of missing profit rather than by a setup meeting the trader's criteria.OvertradingOvertrading is taking more positions than a trader's strategy actually calls for — driven by boredom, a need for action, or an attempt to force results rather than by valid setups.Performance Discipline IndexPDIThe Performance Discipline Index (PDI) is Fortitude's behavioural score measuring how consistently a trader follows their own risk rules — derived from executed trade data covering risk consistency, revenge-trade detection and overtrading analysis.Revenge tradingRevenge trading is entering a new position primarily to recover a recent loss rather than because a valid setup exists — typically with increased size, reduced patience, and shortly after the losing trade closed.Trading journalA trading journal is a record of executed trades and the reasoning behind them, used to identify patterns in performance and behaviour that are not visible from account balance alone.Trading psychologyTrading psychology is the study of how emotional and cognitive factors — fear, greed, loss aversion, overconfidence — affect trading decisions, and of the practices used to keep decisions consistent under pressure.
Long-term investing
Asset allocationAsset allocation is the decision about what proportion of a portfolio sits in each broad asset class — equities, bonds, cash, and others — and it accounts for far more of a portfolio's variability over time than the selection of individual holdings within those classes.Compoundingcompound growthCompounding is growth calculated on both the original amount and the gains already accumulated, so returns generate their own returns — and losses compound in exactly the same way, in the opposite direction.Diversificationspreading riskDiversification is holding assets whose returns do not move together, so that a poor outcome in one is not a poor outcome in all — it reduces the impact of being wrong about any single holding, and does not reduce the risk of being wrong about the market as a whole.DividendA dividend is a distribution of company earnings to shareholders. It is not free income — the share price adjusts downward by approximately the dividend on the ex-dividend date, so a dividend transfers value from the holding to the holder rather than creating it.Dollar-cost averagingDCADollar-cost averaging is investing a fixed amount at fixed intervals regardless of price, which buys more units when prices are lower and fewer when they are higher. Its main effect is behavioural — it removes the timing decision — rather than mathematical.ETFexchange-traded fundAn exchange-traded fund is a fund whose shares trade on an exchange throughout the day like a stock. Most track an index, but the structure itself says nothing about what the fund holds or how risky it is.Index fundtracker fundAn index fund holds the constituents of a published index in their stated proportions rather than selecting them, aiming to match that index's return minus costs — not to beat it.RebalancingRebalancing is periodically returning a portfolio to its target allocation by trimming what has grown beyond its share and adding to what has fallen below it — a rule that mechanically sells strength and buys weakness.Risk tolerancerisk appetiteRisk tolerance is the amount of decline an investor can hold through without abandoning their plan. It is a behavioural limit rather than a financial one, and it is routinely overestimated until it is tested.Time horizonTime horizon is the period before invested money is needed. It determines how much short-term variability is tolerable, and shortening it — by needing the money sooner than planned — changes the risk of a portfolio without changing anything inside it.
None of this is the hard part.
Every definition here is free, and most of them are free everywhere. If knowledge were the bottleneck, the retail loss statistics would have moved a decade ago. They did not.