Trading glossary: signal terms explained
Short, plain definitions of the words you meet in a trading signal. Each answer comes first, so you can read the term and move on.
Entry zone
The price area where a setup makes sense to enter, measured against the stop. Entry is a zone rather than a single number because the market rarely hits exactly one level.
Invalidation
The level or condition where a trade idea is wrong. Invalidation decides where the stop sits and therefore how much the idea costs if it does not work.
Stop-loss
An order or a rule that closes the position when price reaches invalidation. A stop limits the loss to the planned amount, but it can be filled worse than the level in fast moves.
Target (take profit)
A price level where you consider taking profit or reducing. A setup can have several targets, and they should sit at levels where price has reacted before.
Risk/reward (R:R)
The ratio between the distance to target and the distance to invalidation. See risk/reward explained for the formula and examples.
R multiple
A result measured in units of the risk you took at entry. 1R is the amount you risked. A stop gives −1R, and a target twice as far away as the stop gives +2R.
Position size
How much you trade. Size is calculated as the risk amount divided by the distance from entry to invalidation. See position sizing.
Leverage
Trading a larger amount than the margin you put up. Leverage changes how much capital is tied up and magnifies both gains and losses. It does not make a weak setup better.
Slippage
The difference between the price you expected and the price the order was filled at. Slippage is largest in fast markets and at low liquidity.
Spread
The difference between the best buy price and the best sell price. Spread is a cost you pay on every trade, and it matters most on short timeframes.
Volatility
How strongly and quickly price moves. High volatility calls for wider stops and smaller positions if risk is to stay the same.
Wick
The thin line on a candlestick chart showing how far price travelled without closing there. Wicks can hit a stop even if price reverses afterwards.
Long and short
A long trade profits when price rises. A short trade profits when price falls. Both can lose, and in some markets a short can have unlimited loss.
Setup
A specific trade idea with entry, invalidation and targets. A setup is decision support, not an order.
Drawdown
The fall from an account's peak value to its lowest value over a period. Drawdown shows what a string of losses can cost, which makes it a key part of risk management.
Definitions are general education, not personal financial advice. Trading involves risk, and past results do not guarantee future results.