Glossary
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- ATR (Average True Range)
- Average of the true range over n periods; the true range is the greatest of high minus low, high minus previous close, and previous close minus low.
- Backtest
- Simulation of a rule set on historical data. Useful for rejecting ideas, weak at proving them.
- Backwardation
- A futures curve where later-dated contracts trade below nearer ones.
- Basis point
- One hundredth of a percentage point (0.01%).
- Cointegration
- A property of two non-stationary series whose linear combination is stationary.
- Contango
- A futures curve where later-dated contracts trade above nearer ones.
- Curve fitting
- Tuning parameters until a strategy matches past data, at the expense of future performance.
- Drawdown
- Decline from a running peak in equity to a subsequent trough.
- Liquidity
- How easily an asset can be traded in size without moving its price.
- Look-ahead bias
- Using information in a backtest that would not have been available at the time of the trade.
- Sharpe ratio
- Excess return over the risk-free rate divided by the standard deviation of returns.
- Slippage
- Difference between the expected price of a trade and the price actually obtained.
- Sortino ratio
- Like the Sharpe ratio, but penalises only downside volatility.
- Stop-loss
- A pre-defined price at which a losing position is closed.
- Survivorship bias
- Testing only on assets that still exist today, ignoring those that were delisted or went bankrupt.
- Volatility
- Dispersion of returns, usually the annualised standard deviation.