Strategy & Testing
How a trading method is built and proven. These terms cover testing an idea on past and live data, the mistakes that make test results lie, and the plan, journal and review routine that keep a trader consistent.
14
terms in this topic
0
with a chart or figure
14
taught in an Academy lesson
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other topics
14 terms, A to Z
- 7beginner
- 5intermediate
- 2advanced
- BacktestingApplying exact rules to past data, trade by trade, to see whether an idea has an edge.
- BiasYour working assumption of direction, usually from the higher timeframe; you trade with it and update it when structure says so.
- ConfirmationWaiting for extra evidence, like a close beyond a level, before acting; fewer false signals but a later entry.
- EdgeA repeatable advantage that makes more than it loses over many trades, after costs.
- Forward testingTrading a strategy in real time, first on demo and then with very small size, before scaling up.
- Look-ahead biasUsing information you couldn't have had at the time, such as a candle that hadn't closed yet.
- OverfittingTweaking rules until they fit the past perfectly, so they fail on new data.
- Prop firmA company that lets you trade its capital after paying for and passing an evaluation with strict loss limits.
- Sample sizeHow many trades your conclusions rest on; under about 30 is mostly noise, aim for 50 to 100 or more.
- Setup and triggerThe setup is when conditions are worth trading; the trigger is the exact event that gets you in.
- Trading journalA record of every trade, with context and behaviour, used to find what works and what you keep getting wrong.
- Trading planA short written document of what, when and how you trade, with your risk limits and routines.
- Trading styleHow long you hold trades: scalping (minutes), day trading (flat by the close), swing (days to weeks), position (weeks to months).
- Weekly reviewA weekly look at your numbers, rule breaks and best and worst trades, ending in one change to make.