Course E · Testing Popular Ideas
Glossary
A
B
- Backtest
- running a rule over past prices to see its trades E1 How we test an idea
- Base rate
- how often something happens anyway, before any rule acts on it E7 Previous day high and lowalso in E8, E12
- Blind draw
- a version taken at random from N; if all are equally likely to be best, it is best in about 1,000 ÷ N of 1,000 markets, the figure to set beside “stayed best” E10 Session windows
- Blind draw, least-trading version
- what "stayed best" is compared with, both chosen before the count: one version at random, best in about 1,000 ÷ N of 1,000 markets, and the version that trades least, which pays least in costs E16 Capstone: test an idea of your own
- Break of structure (BOS)
- a break of the latest swing level in the trend's direction; the trend stays E11 SMC: market structure
- Breakout, rejection
- opposite readings of a level: the move goes on, or it turns back. Each is a rule to test, not a finding E7 Previous day high and low
C
- Change of character (CHoCH)
- a break against the trend; the trend flips. Which low or high counts is a choice E11 SMC: market structure
- Close outside, touch
- a close beyond a band; a day whose highest or lowest price reached one. How often depends on the data and the settings E5 Volatility bands
- Confluence
- several conditions that must all agree before a trade is taken; a stacked rule keeps a trade only when every condition on its list agrees E15 Confluences
- Crossover
- a day fast minus slow passes through zero: up buys, down sells E2 Moving-average crosses
D
- Daylight saving time
- clocks forward an hour for part of the year; in New York from the second Sunday in March to the first Sunday in November (since 2007) E10 Session windows
- Displacement
- the strong move itself; defined, among other ways, as a candle body at least 2 or 3 times the recent average, or a move that leaves a fair value gap E14 SMC: order blocks
E
- EMA
- a running average that moves a share α of the way to each new close E2 Moving-average crossesalso in E4
- Exact rule
- one that two people would code into the same trades E1 How we test an idea
F
- Fair value gap
- three candles in a row whose first and third don't overlap; the space between them. Up gap: the third's low above the first's high (wick reading) E13 SMC: fair value gaps
- False positive, family-wise error rate
- a result that clears the line when there is nothing to find; the chance that a search gives at least one E16 Capstone: test an idea of your own
- Finding
- a version whose win rate beats the plain rule's by more than 2 standard errors; one version with nothing in it does so by chance about 2.3 times in 100 E15 Confluences
- Finished bar
- a bar that has closed; the only kind of longer bar a rule may read E9 The higher-timeframe filter
G
- Gross, net
- a result before costs; after costs E1 How we test an idea
H
- Held-out years
- years set aside before you start, run once on the final rule E1 How we test an idea
- Higher timeframe
- longer bars built from the shorter bars inside them: the open of the first, the highest high, the lowest low, the close of the last E9 The higher-timeframe filter
- Higher-timeframe filter
- a rule on short bars that trades only in the direction a longer bar's trend points E9 The higher-timeframe filter
- Histogram
- the MACD line minus the signal line E4 MACD
J
- Just holding
- buy on the first day, sell on the last: the benchmark a rule is measured against E1 How we test an idea
L
- Lag
- how far an average trails the price E2 Moving-average crosses
- Least-trading version
- the version with the fewest trading days, chosen before looking at results; the fair yardstick for a best version when costs favour trading less E14 SMC: order blocks
- Liquidity
- orders waiting to be filled, such as stop orders resting just past a level E12 SMC: liquidity sweeps
- Liquidity sweep
- a price that goes past a watched level, then closes back on the near side within a set time; also called a failed breakout E12 SMC: liquidity sweeps
M
- MACD line
- the fast EMA minus the slow EMA of the close (12 and 26 days by custom) E4 MACD
- Mean reversion, breakout
- opposite readings of the bands: buy at the lower band, or at the upper one. Each is a rule to test, not a finding E5 Volatility bands
- Middle band
- the average of the last n closes (20 by custom): a simple moving average E5 Volatility bands
- Mirror level
- a level the same distance from the price on the other side; the base rate a gap's fill rate is compared with E13 SMC: fair value gapsalso in E14
- Multiple testing
- trying many versions and keeping the best; the Bonferroni correction sets a pass mark that luck reaches n times less often E1 How we test an idea
N
- Near edge, far edge
- the gap's side nearer the price now, and the other side; touched, half filled and fully filled mean the price came back to the near edge, the middle or the far edge E13 SMC: fair value gaps
- Near side
- the side of the level the price came from: above a low, below a high E12 SMC: liquidity sweeps
- No finding
- a verdict that says what was measured, on which years, after costs; not proof that the idea fails E16 Capstone: test an idea of your own
O
- Opening range
- the highest and lowest price of a session's first minutes (often 5, 15 or 30); its length is a choice E8 The opening-range breakout
- Order block
- the last candle that went the other way before a strong move (one common reading); another reading takes the candle with the lowest low (highest high) before it E14 SMC: order blocks
P
- Pre-registration
- writing the rule, its switches, the costs and the held-out years down before any run E16 Capstone: test an idea of your own
R
S
- Selling short
- selling first and buying back later; the trade gains when the price falls E7 Previous day high and lowalso in E8
- Session window
- a fixed stretch of clock time in which a rule trades, or looks for trades; its hours and its clock are choices E10 Session windows
- Signal line
- an EMA of the MACD line (9 days by custom) E4 MACD
- SMA
- the average of the last n closes E2 Moving-average crosses
- Standard error, error bar
- how far chance typically moves a measured win rate; the bar is the win rate ± 2 standard errors and widens as trades get fewer E15 Confluences
- Stop, target
- a set price that ends a losing trade; a set price that ends a winning one E8 The opening-range breakout
- Swing high, swing low
- a day whose high is above (low is below) those of the n days either side; known only n days later E11 SMC: market structure
T
- Touch, close beyond
- a bar that reaches the range's edge; a bar whose close is past it. A touch entry fills at the edge, a close entry at that close E8 The opening-range breakout
- Touch, close through
- a bar whose high reaches a level (for a low: whose low reaches it); a bar whose close goes past it. A touch that closes back is a wick through E7 Previous day high and low
- Trend reading
- an exact definition of "trend", such as a bar's colour, its close against an average, or a short average against a long one; each is a separate version E9 The higher-timeframe filter
- Trend, mean reversion
- opposite readings of VWAP: buy above it, or buy below it. Each is a rule to test, not a finding E6 VWAP
- Typical price
- (high + low + close) ÷ 3 for a bar; some tools use the close instead E6 VWAP
U
- Unfinished bar
- a longer bar read before it closes; a backtest sees its final close, a kind of look-ahead bias (traders say the reading repaints) E9 The higher-timeframe filter
- Upper band, lower band
- the middle band plus and minus k standard deviations of the same closes (the width k is 2 by custom; dividing by n in this course, by n − 1 in some tools) E5 Volatility bands
- UTC
- Coordinated Universal Time, the reference clock, with no daylight saving E10 Session windows
- UTC offset
- the hours a place's clock is ahead of UTC (negative if behind) on a given date E10 Session windows
V
- Version
- the same idea with different settings; count every one E1 How we test an ideaalso in E2, E3, E4, E5, E6, E7, E8, E9, E10, E11, E12, E13, E15
- Version, the best of N
- the same idea with different settings; N multiplies the switches' choices, and a fair report names the best as the best of N E16 Capstone: test an idea of your own
- Volume-weighted standard deviation
- the typical distance of the prices from VWAP, each bar counted by its volume; bands sit k of these above and below VWAP E6 VWAP
- VWAP
- volume-weighted average price: the prices since the anchor, each bar counted by its volume E6 VWAP
W
- Wick, body reading
- comparing the candles' highs and lows, or their open-to-close boxes; when each bar opens at the last close, three bars closing the same way make a body gap E13 SMC: fair value gaps
- Wick, close
- reading swings or breaks from a day's high and low, or from its close E11 SMC: market structure
- Width
- the n days on each side a swing needs; a choice E11 SMC: market structure
- Wilder's smoothing
- an EMA with α = 1 ÷ n E3 RSI
Y
- Yesterday's high, low
- the highest and lowest prices of the previous session; in a market that trades around the clock, which hours count as a day is a choice E7 Previous day high and low
Z
- Zone, near edge, far edge
- the order block's price range, from its wicks or its body; its side nearer the price, and the other side E14 SMC: order blocks