Algorithmic trading glossary
104 terms, defined in plain English. Everything here appears somewhere on the platform, in a backtest report, or in an academy lesson.
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A
- Algorithmic trading
- Trading where precise, written-down rules decide when to buy and sell, instead of a person deciding trade by trade. The rules run automatically and apply the same way every time.See also: Strategy, Trading bot
- Alpha
- The part of a strategy's return that is not explained by simply holding the market. A strategy that beats its benchmark after costs is said to generate alpha.See also: Benchmark, Sharpe ratio
- Annualized return
- A strategy's total return converted to the equivalent yearly rate, so tests of different lengths can be compared on one scale. A 20% gain over six months and a 20% gain over three years are very different results; annualizing makes that visible.See also: CAGR
- API key
- A credential a broker or exchange issues so software can access an account without a password. Keys can be scoped, for example trade-only with withdrawals disabled, which is the safe way to connect automated trading.See also: Broker, Deployment
- Arbitrage
- Profiting from price differences for the same asset across markets or forms, buying where it is cheap and selling where it is expensive. Pure arbitrage is close to risk-free, which is exactly why it is fiercely competitive and short-lived.See also: Pairs trading
- Ask price
- The lowest price a seller is currently willing to accept for an asset. A market buy order fills at or near the ask.See also: Bid price, Spread
- ATR
- Average true range. The average size of a bar's full price movement over a recent window, a standard yardstick for current volatility. Many strategies set stop distances and position sizes as multiples of ATR.See also: Volatility, Stop-loss
B
- Backtest
- A simulation that runs a strategy's rules against historical market data to see how it would have performed. A backtest is evidence, not a guarantee, and it is the first gate every strategy should pass before touching real money.See also: Paper trading, Live trading, Overfitting
- Bar
- One row of market data covering a fixed interval: its open, high, low, close, and traded volume. A candlestick is a bar drawn graphically, and a strategy's timeframe decides how much history each bar summarizes.See also: Candlestick, OHLCV, Tick
- Benchmark
- The passive alternative a strategy is judged against, such as simply holding Bitcoin or an index fund. Beating the benchmark after costs is the point; matching it means the extra complexity earned nothing.See also: Buy and hold, Alpha
- Bid price
- The highest price a buyer is currently willing to pay for an asset. A market sell order fills at or near the bid.See also: Ask price, Spread
- Bollinger Bands
- A channel drawn a set number of standard deviations above and below a moving average. Price near the outer bands signals a stretched move, which mean-reversion strategies fade and breakout strategies chase.See also: Moving average, Mean reversion
- Breakout
- A price move through a level that had been holding as support or resistance, often on rising volume. Breakout strategies buy the move as it happens, betting that escape from a range starts a trend.See also: Support and resistance, Trend following
- Broker
- The regulated intermediary that holds a trading account and routes orders to markets. In algorithmic trading the broker is reached through an API, and its fees, fill quality, and reliability directly shape results.See also: Exchange, Execution
- Buy and hold
- Buying an asset and keeping it regardless of price swings. It is the simplest benchmark: an active strategy that cannot beat buying and holding the same asset is not paying for its own complexity.See also: Benchmark
C
- CAGR
- Compound annual growth rate. The single yearly growth rate that would turn the starting equity into the ending equity over the tested period, which makes strategies of different lengths comparable.See also: Annualized return, Compounding
- Calmar ratio
- Annualized return divided by maximum drawdown. It asks whether the reward was worth the worst stretch of pain; a value above 1 means the yearly gain outran the deepest dip.See also: Max drawdown, Sharpe ratio
- Candlestick
- A chart element that summarizes price movement over one time interval with four values: open, high, low, and close. A series of candlesticks is the standard way traders read price history.See also: Bar, OHLCV
- Compounding
- Reinvesting gains so future returns are earned on a growing base. It is why steady modest returns become large over time, and why deep drawdowns hurt more than they look: a 50% loss needs a 100% gain to recover.See also: CAGR
- Copy trading
- Automatically mirroring another trader's or strategy's positions in your own account, scaled to your capital. You inherit the results, good and bad, without writing the rules yourself.See also: Deployment
- Correlation
- How closely two assets or strategies move together, from -1 (opposite) through 0 (unrelated) to +1 (in lockstep). Holding several highly correlated positions is one bet wearing different names.See also: Diversification
- Crossover
- A signal that fires when one line crosses another, classically a fast moving average crossing above a slow one to trigger an entry. Crossovers are popular because they are unambiguous and easy to test.See also: Moving average, Entry signal
D
- Deployment
- Taking a strategy from testing to running continuously against an account. On Horizon a deployment pairs a strategy with capital and a market and trades it until you stop it.See also: Live trading, Paper trading
- Diversification
- Spreading capital across assets or strategies that do not move together, so no single failure dominates the account. It is the one risk reducer that does not require predicting anything.See also: Correlation, Portfolio
- Dollar-cost averaging
- Investing a fixed amount at regular intervals no matter the price, which buys more units when prices are low and fewer when they are high. Often shortened to DCA, it trades timing decisions for discipline.See also: Buy and hold
- Drawdown
- The decline from an equity peak to the following trough, usually quoted as a percentage. Maximum drawdown is the deepest such decline in the tested period and is the standard measure of how painful a strategy is to hold.See also: Max drawdown, Equity curve
E
- EMA
- Exponential moving average. A moving average that weights recent prices more heavily, so it reacts to new moves faster than a simple average of the window. The price of that speed is more sensitivity to noise.See also: Moving average, MACD
- Entry signal
- The condition that tells a strategy to open a position, for example a price crossing above its moving average. A complete strategy always pairs it with an exit rule and a position size.See also: Exit rule, Signal
- Equity curve
- A chart of account value over time as a strategy trades. A healthy equity curve rises with shallow, short-lived dips; its shape often says more than any single statistic.See also: Drawdown
- Exchange
- The marketplace where orders meet and trades happen, such as a stock or crypto exchange. Crypto strategies often connect to the exchange directly; elsewhere a broker sits in between.See also: Broker, Order book
- Execution
- Everything involved in turning a trading decision into a filled order at a broker or exchange: routing, timing, order types, and the price actually obtained.See also: Fill, Slippage
- Exit rule
- The condition that closes an open position, whether at a profit target, a stop-loss, an opposite signal, or after a fixed time. Strategies fail more often from missing exits than from bad entries.See also: Stop-loss, Take-profit
- Expectancy
- The average profit or loss per trade a strategy earns over many trades, combining win rate with average win and loss sizes. A positive expectancy after costs is the definition of an edge.See also: Win rate, Profit factor
- Exposure
- How much of the account is committed to open positions at a moment, or the share of time a strategy spends in the market. Returns should be judged against it: a strategy that is rarely in the market earns its returns with less time at risk.See also: Position sizing, Leverage
F
- Fill
- The execution of an order, in whole or in part, at a specific price. An order is a request; the fill is what actually happened, and the difference between the two is where slippage lives.See also: Execution, Slippage
- Forward testing
- Running a strategy on live market data without real money, also called paper trading. It checks that the rules behave in current conditions before capital is committed.See also: Paper trading, Backtest
- Funding rate
- The periodic payment exchanged between long and short holders of a perpetual futures contract that keeps its price tied to the underlying asset. Funding is a real cost or income stream that backtests on perpetuals must include.See also: Perpetual futures
G
- Grid trading
- A strategy that places a ladder of buy and sell orders at fixed price steps, profiting as price oscillates through the grid. It performs in sideways markets and suffers when price trends hard out of the grid.See also: Mean reversion
H
- Hedging
- Opening a position specifically to offset the risk of another, such as shorting a correlated asset against a long holding. A hedge gives up some profit in exchange for a smaller worst case.See also: Diversification, Short
I
- Indicator
- A value computed from price or volume history, such as a moving average or RSI, that condenses raw data into something a rule can act on. Indicators describe the past; strategies decide what to do with them.See also: Moving average, RSI, MACD
- In-sample data
- The slice of history a strategy was designed or tuned on. Strong results here prove little, because the rules have already seen the answers; judgment waits for out-of-sample data.See also: Out-of-sample data, Overfitting
- Instrument
- Any tradable thing: a stock, a currency pair, a futures contract, a perpetual. A strategy is always defined on a specific instrument, and the same rules can behave completely differently on another one.See also: Ticker
L
- Latency
- The delay between a decision and its effect at the exchange, from data arriving to an order landing. For most retail timeframes latency barely matters; for high-frequency trading it is the whole game.See also: Execution
- Leverage
- Trading with borrowed funds so position size exceeds account equity. Leverage multiplies both gains and losses, and it is the fastest way to turn a survivable drawdown into a fatal one.See also: Margin, Liquidation
- Limit order
- An order that fills only at a specified price or better. It guarantees the price but not the fill: the market can move away without ever reaching it.See also: Market order, Order book
- Liquidation
- The forced closing of a leveraged position by the exchange when losses eat through its margin. Liquidation locks in the loss at the worst moment and often adds a penalty fee, which is why leverage demands wide safety margins.See also: Margin, Leverage
- Liquidity
- How easily an asset can be bought or sold without moving its price. Liquid markets have tight spreads and deep order books; illiquid ones make large orders expensive to execute.See also: Spread, Order book
- Live trading
- Running a strategy against a funded account where fills, fees, and slippage are real. It is the final stage of the pipeline after backtesting and paper trading, and the only one that pays or costs actual money.See also: Deployment, Paper trading
- Long
- A position that profits when the price rises. Buying an asset in the expectation it will go up is going long.See also: Short
- Lookahead bias
- A backtesting error where the simulation uses information that was not yet available at the moment of the simulated decision, such as acting on a candle's close before the candle finished. It inflates results and is one of the most common ways backtests lie.See also: Overfitting, Backtest
M
- MACD
- Moving average convergence divergence. An indicator built from the gap between a fast and a slow exponential moving average, plus a signal line that smooths that gap. Crossovers and sign changes in MACD are common momentum entries.See also: EMA, Momentum
- Margin
- The collateral an exchange requires to open and hold a leveraged position. When losses push the account below the maintenance requirement, the position faces liquidation.See also: Leverage, Liquidation
- Market data
- The stream of prices, volumes, and order-book updates that strategies read, whether historical for backtesting or live for trading. Data quality quietly caps strategy quality: gaps and bad prints make good rules look wrong.See also: OHLCV, Tick
- Market order
- An order that fills immediately at the best available price. It guarantees the fill but not the price, which can differ from the quote in fast or thin markets.See also: Limit order, Slippage
- Max drawdown
- The largest peak-to-trough decline in account value over a period, quoted as a percentage. It answers the question every trader should ask first: how bad did it get?See also: Drawdown, Calmar ratio
- Mean reversion
- A strategy family built on the tendency of prices to return toward an average after stretching away from it. Mean-reversion systems buy weakness and sell strength, the mirror image of trend following.See also: Trend following, RSI
- Momentum
- The tendency of recent winners to keep winning and recent losers to keep losing over some horizon. Momentum strategies buy strength, and are close cousins of trend following measured over a fixed lookback.See also: Trend following
- Monte Carlo simulation
- A stress test that reshuffles or resamples a strategy's trades many times to see the range of outcomes luck alone could produce. If ruin shows up in many reshuffles, the original backtest was fortunate, not robust.See also: Robustness, Walk-forward testing
N
O
- OHLCV
- Open, high, low, close, and volume: the five values that summarize one bar of market data. Nearly all backtesting runs on OHLCV series at some timeframe.See also: Bar, Candlestick
- Optimization
- Searching over a strategy's parameters for the combination that scores best on historical data. Some optimization is necessary; too much of it is overfitting with a progress bar.See also: Parameter, Overfitting
- Order book
- The live list of outstanding buy and sell orders at each price level on an exchange. Its depth shows how much can be traded before price moves, which is liquidity made visible.See also: Liquidity, Limit order
- Out-of-sample data
- History deliberately held back from strategy design and used only for a final test. Performance here is the closest a backtest gets to an honest preview of live results.See also: In-sample data, Walk-forward testing
- Overfitting
- Tuning a strategy so closely to historical data that it memorizes the past instead of capturing a durable pattern. An overfit strategy shows a beautiful backtest and falls apart live.See also: Walk-forward testing, Robustness
P
- Pairs trading
- A market-neutral strategy that goes long one asset and short a related one, betting the spread between them will normalize. Profit depends on the relationship, not on market direction.See also: Correlation, Arbitrage
- Paper trading
- Simulated trading with live prices and no real money. It is the dress rehearsal between a good backtest and a live deployment.See also: Forward testing, Live trading
- Parameter
- A number a strategy's rules depend on, such as a moving-average length or a stop distance. Every added parameter is another dial that can be overfit, so fewer is usually safer.See also: Optimization, Robustness
- Perpetual futures
- A futures contract with no expiry date, kept near the underlying price by funding-rate payments between longs and shorts. Perpetuals, often shortened to perps, are the main venue for leveraged crypto trading.See also: Funding rate, Leverage
- PnL
- Profit and loss. Realized PnL comes from closed trades; unrealized PnL is the paper gain or loss on positions still open, which can vanish before it is banked.See also: Equity curve
- Portfolio
- The full set of positions and strategies an account holds, viewed as one unit. Portfolio-level questions, like how much strategies overlap and what the combined drawdown looks like, matter more than any single trade.See also: Diversification, Rebalancing
- Position
- The holding a strategy currently has in an instrument: its direction, size, and entry price. Being flat means holding no position at all.See also: Long, Short, Position sizing
- Position sizing
- The rule that decides how much capital each trade gets, such as risking a fixed fraction of equity per trade. Sizing determines whether a losing streak is a dip or a disaster.See also: Risk management, Exposure
- Profit factor
- Gross profit divided by gross loss across all closed trades. A value above 1 means the strategy made more than it lost; seasoned traders like to see comfortably above 1.5 after costs.See also: Win rate, Expectancy
R
- Rebalancing
- Periodically restoring a portfolio's intended weights by trimming what grew and adding to what shrank. It enforces sell-high, buy-low mechanically instead of emotionally.See also: Portfolio
- Risk management
- The rules that cap what any trade or losing streak can cost: stop-losses, position sizing, exposure limits, and drawdown limits. It is the part of trading that keeps you in the game long enough for an edge to matter.See also: Stop-loss, Position sizing, Max drawdown
- Risk-reward ratio
- How much a trade stands to gain relative to what it risks, measured from entry to profit target versus entry to stop-loss. A 1:3 setup risks one unit to make three.See also: Stop-loss, Take-profit
- Robustness
- A strategy's ability to keep working when conditions shift: different parameters, different periods, different instruments. Robust strategies give up some backtest beauty in exchange for surviving contact with the future.See also: Walk-forward testing, Monte Carlo simulation
- RSI
- Relative strength index. An indicator from 0 to 100 that measures how one-sided recent price movement has been; readings above 70 are conventionally called overbought and below 30 oversold. It is a staple trigger for mean-reversion entries.See also: Mean reversion, Indicator
S
- Scalping
- A style that takes many small, fast trades, holding for seconds to minutes. Costs dominate at this speed: fees, spread, and slippage decide whether a scalping edge survives.See also: Swing trading, Transaction costs
- Short
- A position that profits when the price falls, opened by selling an asset first with the intent to buy it back cheaper. Losses on a short are theoretically unlimited, which makes risk controls essential.See also: Long, Margin
- Signal
- The output of a strategy's rules at a moment in time: buy, sell, or do nothing. Signals come from data; execution turns them into orders.See also: Entry signal, Indicator
- Slippage
- The difference between the price a strategy expected and the price the order actually filled at. Real backtests model it, because ignoring slippage flatters every result.See also: Transaction costs, Market order
- Sortino ratio
- A cousin of the Sharpe ratio that penalizes only downside volatility instead of all volatility. It treats upside swings as welcome rather than as risk.See also: Sharpe ratio
- Spread
- The gap between the best bid and the best ask. It is the built-in cost of every round trip and a good first proxy for how expensive a market is to trade.See also: Bid price, Ask price, Transaction costs
- Stop-loss
- An order that closes a position automatically once the price moves against it by a set amount. It converts an open-ended loss into a defined, survivable one.See also: Take-profit, Trailing stop
- Strategy
- A complete, testable set of trading rules: what to trade, when to enter, when to exit, and how much to risk. If any of the four is missing, it is an idea, not a strategy.See also: Entry signal, Exit rule, Position sizing
- Support and resistance
- Price levels where falls have repeatedly stopped (support) or rallies have repeatedly stalled (resistance). Strategies use them as reference points for entries, stops, and breakout triggers.See also: Breakout
- Survivorship bias
- A data error where delisted or failed assets are missing from history, so backtests trade only the winners that survived. It flatters results, especially in stock strategies tested on today's index members.See also: Lookahead bias, Backtest
T
- Take-profit
- An order that closes a position automatically once price reaches a set gain. Paired with a stop-loss, it fixes the trade's risk-reward ratio in advance.See also: Stop-loss, Risk-reward ratio
- Tick
- The smallest recorded market event: one trade or quote change, with its price and size. Tick data is the finest-grained history available; bars are built by summarizing it.See also: Bar, Market data
- Ticker
- The short symbol that identifies an instrument, such as BTCUSDT or AAPL. The same asset can trade under different tickers on different venues.See also: Instrument
- Timeframe
- The bar interval a strategy reads and trades on, from one-minute bars to daily or weekly ones. The same rules can behave completely differently across timeframes.See also: Bar
- Trading bot
- Software that watches market data and places orders on its own, following the strategy it was given. The bot supplies the discipline; the strategy still supplies, or fails to supply, the edge.See also: Algorithmic trading, Deployment
- Trailing stop
- A stop-loss that follows the price at a set distance as the trade moves into profit, but never retreats. It lets winners run while ratcheting the exit upward behind them.See also: Stop-loss, Take-profit
- Transaction costs
- Everything a round trip costs: fees, commissions, the spread, slippage, and funding on leveraged positions. Backtests that ignore them regularly turn losing strategies into imaginary winners.See also: Slippage, Spread, Funding rate
- Trend following
- A strategy family that buys what is already rising and sells what is already falling, betting that moves persist. It loses small and often in flat markets and wins big when a real trend arrives.See also: Momentum, Mean reversion
V
- Volatility
- How much and how fast a price moves, usually measured as the standard deviation of returns. Volatility is the raw material of profit and of risk; strategies must be sized to it.See also: ATR, Sharpe ratio
W
- Walk-forward testing
- A validation method that tunes a strategy on one slice of history and then tests it on the following unseen slice, repeating the split forward through time. It is the standard defense against overfitting.See also: Out-of-sample data, Overfitting
- Win rate
- The percentage of closed trades that ended profitable. On its own it is misleading: a 90% win rate loses money if the rare losses outweigh the many wins.See also: Profit factor, Expectancy
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