Glossary

Trading & backtesting glossary

Plain-language definitions of the trading and backtesting terms used across Traseq — from win rate and drawdown to RSI, breakouts and the Sharpe ratio.

The basics

Backtest: A backtest runs a strategy’s entry and exit rules over past market data and reports what would have happened — total return, win rate, drawdown and more. It is a fast, no-risk way to sanity-check an idea, though past results never guarantee future ones.
Strategy: A trading strategy turns a market idea into precise, testable rules — for example “buy when price closes above its 200-bar average.” Because the rules are explicit, they can be backtested and run consistently without second-guessing in the moment.
Candle (bar): Each candle covers one interval (here, one hour) and shows where price opened, the highest and lowest it traded, and where it closed. A “200-bar” average simply means a calculation over the last 200 of these candles.
Closing price: The close is the price at the end of each bar’s interval. Many rules act “on the close” — they wait for the candle to finish before triggering, which avoids reacting to temporary intrabar spikes.
Long position: Going long means you own the asset and gain if the price increases. These demo strategies are long-only — they either hold a long position or sit in cash, and never bet on prices falling.
Account equity: Equity rises and falls with both realised profits and the floating profit or loss of open trades. The equity curve on the chart traces this total value across the test.

Indicators

Moving average (SMA): A simple moving average (SMA) adds up the closes of the last N bars and divides by N — a 200-bar SMA tracks the long-term trend while a shorter one reacts faster. Price crossing above or below its SMA is a common trend signal.
RSI: The Relative Strength Index (RSI) compares recent gains to recent losses on a 0–100 scale. Readings below 30 suggest price has fallen too far too fast (oversold); above 70 suggests it has risen too far too fast (overbought).
Donchian Channel: The Donchian Channel marks the recent trading range — its upper band is the highest high over N bars, the lower band the lowest low. A close above the upper band is a classic breakout signal.
Overbought: An overbought reading (for example RSI above 70) flags an unusually strong recent rally. Mean-reversion strategies treat it as a cue to sell, betting the move will cool off.
Oversold: An oversold reading (for example RSI below 30) flags an unusually sharp recent drop. Mean-reversion strategies treat it as a cue to buy, betting the move will rebound.

Strategy types

Trend: A trend-following strategy tries to ride sustained moves and step aside when there isn’t one. A “trend filter” only allows trades in the direction of the longer-term trend.
Momentum: Momentum measures how forcefully price is moving. Some strategies buy strong momentum expecting it to continue; others fade extreme momentum expecting it to reverse.
Mean reversion: Mean-reversion strategies buy after sharp drops and sell after sharp rallies, betting that extremes are temporary. The edge is usually thin and works best in range-bound, non-trending markets.
Breakout: A breakout strategy buys when price clears its recent range (for example a 20-bar high), betting a fresh move is starting. Many breakouts fail (“false breakouts”), so these systems rely on a few big winners to pay for many small losses.

Risk & performance

Stop-loss: A 5% stop-loss automatically exits if a trade falls 5% from entry, so a single bad trade can’t blow a large hole in the account. It is the most basic form of risk control.
Trailing stop: Unlike a fixed stop, a trailing stop ratchets higher as price rises and only triggers if price falls back by the set amount. It lets winners run while protecting accumulated profit.
Take-profit: A take-profit (for example +5%) banks the win automatically when the target is hit, rather than risking that the move reverses. Pairing a tight stop with a take-profit defines the trade’s risk and reward up front.
Position: Holding a position means you currently own (or are short) the asset. These demos cap exposure at one position at a time, so signals that fire while already in a trade are ignored until it closes.
Max drawdown: Max drawdown measures the largest drop from a high-water mark to a later low. It captures the pain of holding a strategy: a great return paired with a brutal drawdown is hard to actually stick with.
Win rate: Win rate alone does not decide whether a strategy is good — a low win rate can still be very profitable if the wins are much larger than the losses, and a high one can still lose money if the losses are larger.
Profit factor: A profit factor of 1.5 means the strategy earned $1.50 for every $1.00 it lost. Near 1.0 means little real edge once fees are considered; below 1.0 means it lost money overall.
Sharpe ratio: The Sharpe ratio rewards smooth, steady returns and penalises wild swings. It lets you compare strategies on a level field: a high return with huge volatility can score worse than a modest but stable one.
Total return: Total return is the bottom-line result — how much the account grew or shrank from start to finish. On its own it ignores how bumpy the ride was, which is why it is read alongside drawdown and the Sharpe ratio.

The basics

Backtest

A backtest runs a strategy’s entry and exit rules over past market data and reports what would have happened — total return, win rate, drawdown and more. It is a fast, no-risk way to sanity-check an idea, though past results never guarantee future ones.

Read the full guide

Strategy

A trading strategy turns a market idea into precise, testable rules — for example “buy when price closes above its 200-bar average.” Because the rules are explicit, they can be backtested and run consistently without second-guessing in the moment.

Read the full guide

Candle (bar)

Each candle covers one interval (here, one hour) and shows where price opened, the highest and lowest it traded, and where it closed. A “200-bar” average simply means a calculation over the last 200 of these candles.

Closing price

The close is the price at the end of each bar’s interval. Many rules act “on the close” — they wait for the candle to finish before triggering, which avoids reacting to temporary intrabar spikes.

Long position

Going long means you own the asset and gain if the price increases. These demo strategies are long-only — they either hold a long position or sit in cash, and never bet on prices falling.

Account equity

Equity rises and falls with both realised profits and the floating profit or loss of open trades. The equity curve on the chart traces this total value across the test.

Indicators

Moving average (SMA)

A simple moving average (SMA) adds up the closes of the last N bars and divides by N — a 200-bar SMA tracks the long-term trend while a shorter one reacts faster. Price crossing above or below its SMA is a common trend signal.

RSI

The Relative Strength Index (RSI) compares recent gains to recent losses on a 0–100 scale. Readings below 30 suggest price has fallen too far too fast (oversold); above 70 suggests it has risen too far too fast (overbought).

Donchian Channel

The Donchian Channel marks the recent trading range — its upper band is the highest high over N bars, the lower band the lowest low. A close above the upper band is a classic breakout signal.

Overbought

An overbought reading (for example RSI above 70) flags an unusually strong recent rally. Mean-reversion strategies treat it as a cue to sell, betting the move will cool off.

Oversold

An oversold reading (for example RSI below 30) flags an unusually sharp recent drop. Mean-reversion strategies treat it as a cue to buy, betting the move will rebound.

Strategy types

Trend

A trend-following strategy tries to ride sustained moves and step aside when there isn’t one. A “trend filter” only allows trades in the direction of the longer-term trend.

Momentum

Momentum measures how forcefully price is moving. Some strategies buy strong momentum expecting it to continue; others fade extreme momentum expecting it to reverse.

Mean reversion

Mean-reversion strategies buy after sharp drops and sell after sharp rallies, betting that extremes are temporary. The edge is usually thin and works best in range-bound, non-trending markets.

Breakout

A breakout strategy buys when price clears its recent range (for example a 20-bar high), betting a fresh move is starting. Many breakouts fail (“false breakouts”), so these systems rely on a few big winners to pay for many small losses.

Risk & performance

Stop-loss

A 5% stop-loss automatically exits if a trade falls 5% from entry, so a single bad trade can’t blow a large hole in the account. It is the most basic form of risk control.

Trailing stop

Unlike a fixed stop, a trailing stop ratchets higher as price rises and only triggers if price falls back by the set amount. It lets winners run while protecting accumulated profit.

Take-profit

A take-profit (for example +5%) banks the win automatically when the target is hit, rather than risking that the move reverses. Pairing a tight stop with a take-profit defines the trade’s risk and reward up front.

Position

Holding a position means you currently own (or are short) the asset. These demos cap exposure at one position at a time, so signals that fire while already in a trade are ignored until it closes.

Max drawdown

Max drawdown measures the largest drop from a high-water mark to a later low. It captures the pain of holding a strategy: a great return paired with a brutal drawdown is hard to actually stick with.

Read the full guide

Win rate

Win rate alone does not decide whether a strategy is good — a low win rate can still be very profitable if the wins are much larger than the losses, and a high one can still lose money if the losses are larger.

Profit factor

A profit factor of 1.5 means the strategy earned $1.50 for every $1.00 it lost. Near 1.0 means little real edge once fees are considered; below 1.0 means it lost money overall.

Sharpe ratio

The Sharpe ratio rewards smooth, steady returns and penalises wild swings. It lets you compare strategies on a level field: a high return with huge volatility can score worse than a modest but stable one.

Total return

Total return is the bottom-line result — how much the account grew or shrank from start to finish. On its own it ignores how bumpy the ride was, which is why it is read alongside drawdown and the Sharpe ratio.