Glossary

Marketing/Content note: Initial scaffolding — extend as needed.

Backtest — Running a strategy against historical data to estimate how it would have performed.

Drawdown — A decline from a portfolio's peak value to a subsequent trough. The maximum drawdown (MDD) is the largest such decline.

Look-ahead bias — A flaw where a strategy uses information that wouldn't have been available at decision time, producing unrealistically good results.

Profit factor — Gross profit divided by gross loss. Above 1.0 is profitable in-sample.

Sharpe ratio — A measure of risk-adjusted return.

Slippage — The difference between the expected price of a trade and the price at which it actually executes.

Stop-loss — An order that closes a position once losses reach a set level.

Take-profit — An order that closes a position once gains reach a target.

Win rate — The percentage of trades that were profitable.