Glossary of Definitions

Each entry links to the papers that use it; entries are regenerated weekly from the published papers so the glossary can never drift from the library. Diagrams are drawn programmatically from the definition, not by a model.

142 terms across 62 papers.

Contents

• Start Here
• Stocks
• Futures
• Quantitative
• Order Flow & Structure
• Price Action (ICT / SMC)

Start Here

Amygdala hijack: A state in which the brain's threat-detection center (amygdala) overrides rational analysis in the prefrontal cortex, triggering fight-or-flight responses inappropriate for trading decisions. Used in: How Revenge Trading and Tilt Destroy Funded Accounts

Bid-ask spread: The difference between the highest price buyers are willing to pay (bid) and the lowest price sellers are willing to accept (ask); the cost of immediate execution via market order. Used in: Market Orders vs. Limit Orders: Why Your Order Type Matters More Than You Think, Execution Cost Mathematics: The Hidden Drain on Intraday Futures Profits

Bracket Order: A three-legged order consisting of an entry order paired with a profit target and stop-loss order placed simultaneously, where execution of either exit order automatically cancels the other. Used in: Bracket Orders and OCO: The Foundation of Automated Trade Management

Daily loss limit: A mechanical rule that terminates or freezes trading activity when cumulative losses on a single day reach a specified percentage of account value. Used in: How Revenge Trading and Tilt Destroy Funded Accounts, Consistency Rules at Different Prop Firms: Why the Math Matters More Than You Think

Drawdown: The peak-to-trough decline in account equity during a specified period; prop firms enforce maximum drawdown caps beyond which accounts are terminated. Used in: How Revenge Trading and Tilt Destroy Funded Accounts, Consistency Rules at Different Prop Firms: Why the Math Matters More Than You Think, The Kelly Criterion vs. Fixed Risk: Which Sizing Method Works for Prop Traders

Drawdown Limit: The maximum cumulative loss permitted on an account within a defined period, commonly enforced in proprietary trading firms to manage risk. Used in: Bracket Orders and OCO: The Foundation of Automated Trade Management, Notional Value vs. Margin: Why Margin Alone Blinds Prop Traders to Real Risk, Tick Size and Tick Value: The Foundation of Position Sizing

E-mini contracts: Standardized equity index futures contracts (such as ES and NQ) that are one-fifth the size of standard index futures, widely traded by institutional and retail participants. Used in: How Much Capital Do You Actually Need to Trade Futures?

Fixed risk: A position sizing method that risks a constant dollar amount or percentage of the account on every trade, independent of market conditions or recent performance. Used in: The Kelly Criterion vs. Fixed Risk: Which Sizing Method Works for Prop Traders

Fractional Kelly: A conservative variant of the Kelly Criterion that applies a safety multiplier (such as 0.25× or 0.50×) to the full Kelly percentage to reduce volatility and maximum drawdown. Used in: The Kelly Criterion vs. Fixed Risk: Which Sizing Method Works for Prop Traders

Futures Commission Merchant (FCM): A regulated broker authorized to accept customer orders and margin for futures and options trades. Used in: Margin vs. Minimum Deposit: Why Your Account Needs More Than You Think

Initial margin: The minimum amount of funds required in an account to open a new futures position. Used in: Margin vs. Minimum Deposit: Why Your Account Needs More Than You Think, Tick Size and Tick Value: The Foundation of Position Sizing

Intraday (day-trade) margin: The reduced margin requirement set by brokers for positions entered and closed within the same trading day, typically significantly lower than overnight requirements. Used in: How Much Capital Do You Actually Need to Trade Futures?

Intraday margin: A reduced margin requirement applied to positions held during regular trading hours that will be closed before the session end; typically 25-50% of overnight initial margin. Used in: Margin vs. Minimum Deposit: Why Your Account Needs More Than You Think, Tick Size and Tick Value: The Foundation of Position Sizing

Kelly Criterion: A position sizing formula that calculates the mathematically optimal percentage of capital to risk per trade based on win rate and payoff ratio, expressed as Kelly % = W − (1 − W) / R, where W is winning probability and R is the ratio of average win to average loss. Used in: The Kelly Criterion vs. Fixed Risk: Which Sizing Method Works for Prop Traders

Limit order: An instruction to buy at a maximum price or sell at a minimum price, guaranteeing the fill price will not be worse than specified but offering no guarantee of execution. Used in: Market Orders vs. Limit Orders: Why Your Order Type Matters More Than You Think, Execution Cost Mathematics: The Hidden Drain on Intraday Futures Profits

Loss aversion: The tendency for losses to feel approximately twice as psychologically painful as equivalent gains, leading to irrational decision-making to avoid further losses. Used in: How Revenge Trading and Tilt Destroy Funded Accounts

Maintenance margin: The minimum balance that must remain in an account at all times; falling below this level triggers a margin call. Used in: Margin vs. Minimum Deposit: Why Your Account Needs More Than You Think

Margin: A good-faith deposit posted to an exchange or broker to guarantee a trader can cover potential losses on a futures position; not a loan or down payment. Used in: Margin vs. Minimum Deposit: Why Your Account Needs More Than You Think, The Kelly Criterion vs. Fixed Risk: Which Sizing Method Works for Prop Traders

Margin call: A demand from a broker to deposit additional funds when account equity falls below the maintenance margin threshold. Used in: Margin vs. Minimum Deposit: Why Your Account Needs More Than You Think, How Much Capital Do You Actually Need to Trade Futures?

Market impact: The additional cost incurred when an order is larger than the available quantity at the best price level, forcing execution at progressively worse prices across multiple price levels. Used in: Market Orders vs. Limit Orders: Why Your Order Type Matters More Than You Think

Market order: An instruction to buy or sell immediately at the best available price in the order book, prioritizing execution certainty over price control. Used in: Market Orders vs. Limit Orders: Why Your Order Type Matters More Than You Think, Execution Cost Mathematics: The Hidden Drain on Intraday Futures Profits

Micro contracts: Smaller-sized futures contracts (such as MES and MNQ) designed for retail traders, with notional values and margin requirements approximately one-tenth those of standard E-mini contracts. Used in: How Much Capital Do You Actually Need to Trade Futures?

OCO (One-Cancels-the-Other) Order: A linked pair of opposing exit orders, typically a profit target and stop loss, where execution of one automatically cancels the other, applied to an existing position. Used in: Bracket Orders and OCO: The Foundation of Automated Trade Management

Order book: A real-time ledger displaying all outstanding buy orders (bid side) and sell orders (ask side) at each price level, showing supply and demand. Used in: Market Orders vs. Limit Orders: Why Your Order Type Matters More Than You Think

Order Cancellation Logic: The automated mechanism by which a trading platform removes an unfilled order from the market upon execution of a paired or triggering order. Used in: Bracket Orders and OCO: The Foundation of Automated Trade Management

Overnight (maintenance) margin: The margin requirement set by exchanges for positions held past the daily close; typically substantially higher than intraday margin for the same contract. Used in: How Much Capital Do You Actually Need to Trade Futures?

Overnight margin: The full initial margin requirement applied to positions held past the intraday close or across trading sessions. Used in: Margin vs. Minimum Deposit: Why Your Account Needs More Than You Think

Payoff ratio: The ratio of average winning trade size to average losing trade size; a 2:1 payoff ratio means the average winner is twice the dollar size of the average loser. Used in: The Kelly Criterion vs. Fixed Risk: Which Sizing Method Works for Prop Traders

Profit Target: A limit order placed above the entry price on a long position (or below on a short) set to automatically close the trade at a predefined profit level. Used in: Bracket Orders and OCO: The Foundation of Automated Trade Management, Consistency Rules at Different Prop Firms: Why the Math Matters More Than You Think

Prospect theory: A descriptive theory of decision-making under risk showing that people weight losses more heavily than equivalent gains and often make irrational choices to avoid losses. Used in: How Revenge Trading and Tilt Destroy Funded Accounts

Regular Trading Hours (RTH): For U.S. Equity index futures, the period from 9:30 AM to 4:00 PM ET when institutional volume and liquidity are highest. Used in: Market Orders vs. Limit Orders: Why Your Order Type Matters More Than You Think

Revenge trading: Trading to recover losses through increased position sizes or rule violations driven by emotional distress rather than a planned strategy. Used in: How Revenge Trading and Tilt Destroy Funded Accounts

Risk of ruin: The probability that a trading account will be depleted to zero or fall below a minimum threshold before reaching a profit target, determined by win rate, payoff ratio, and position size. Used in: The Kelly Criterion vs. Fixed Risk: Which Sizing Method Works for Prop Traders

Stop Loss: An order placed below the entry price on a long position (or above on a short) that automatically triggers a market exit if price moves adversely by a specified amount. Used in: Bracket Orders and OCO: The Foundation of Automated Trade Management

Tick: The minimum price increment by which a futures contract can move, set by the exchange and fixed for each contract type. Used in: Tick Size and Tick Value: The Foundation of Position Sizing

Tick size: The fractional or decimal price increment representing one tick, expressed as a portion of a full point (e.g., 0.25 index points for ES). Used in: Tick Size and Tick Value: The Foundation of Position Sizing

Tilt: An emotional state in which frustration or loss aversion causes a trader to deviate from their trading plan, potentially including revenge trading but also overconfidence or FOMO. Used in: How Revenge Trading and Tilt Destroy Funded Accounts

Stocks

Allocation drift: The unintended shift in a portfolio's asset weights caused by differential performance among holdings over time. Used in: Market Cycles Within Cycles: Why Portfolio Rebalancing Traps Long-Term Investors Into Selling Cheap

Alpha decay: The decline in excess returns following academic publication or widespread investor adoption of a trading signal, as arbitrage and competition compress the initial premium. Used in: Why Factor Performance Decays: Understanding Alpha Decay and Crowding in Long-Term Investing

Calendar-based rebalancing: A rebalancing approach that adjusts portfolio allocations at fixed time intervals (monthly, quarterly, annually) regardless of market conditions. Used in: Market Cycles Within Cycles: Why Portfolio Rebalancing Traps Long-Term Investors Into Selling Cheap

Convergent factor: A factor anchored to fundamentals and subject to negative feedback loops, such that crowding reinforces rather than undermines the underlying signal (example: value). Used in: Why Factor Performance Decays: Understanding Alpha Decay and Crowding in Long-Term Investing

Divergent factor: A factor lacking fundamental anchors and subject to positive feedback loops, such that crowding amplifies price movements and eventual reversals (example: momentum). Used in: Why Factor Performance Decays: Understanding Alpha Decay and Crowding in Long-Term Investing

Dividend payout ratio: The percentage of a company's net income paid out to shareholders as cash dividends, expressed as a proportion of total earnings. Used in: Earnings Yield vs. Earnings Power: How Retention Ratio Reveals Which Cheap Stocks Actually Reinvest for Growth

Dividend yield: Annual dividends per share divided by the current share price, expressed as a percentage; reflects only the cash portion of earnings actually distributed to shareholders. Used in: Earnings Yield vs. Earnings Power: How Retention Ratio Reveals Which Cheap Stocks Actually Reinvest for Growth

Dollar-cost averaging (DCA): A strategy of investing a fixed amount of money at regular intervals regardless of asset price, intended to reduce the impact of price volatility on the average cost per unit. Used in: Dollar-Cost Averaging vs. Lump-Sum Investing: The Data and When Each Works

Earnings yield: Annual earnings per share divided by the current share price, expressed as a percentage; the inverse of the price-to-earnings ratio and a measure of the cash return a company generates relative to its market value. Used in: Earnings Yield vs. Earnings Power: How Retention Ratio Reveals Which Cheap Stocks Actually Reinvest for Growth

Exchange-traded fund (ETF): A pooled investment vehicle traded on exchanges that holds a basket of securities and tracks an underlying index, commodity, or asset class. Used in: Dollar-Cost Averaging vs. Lump-Sum Investing: The Data and When Each Works

Factor crowding: The erosion of factor returns as increasing capital competes for the same profitable signal, dividing available alpha among more participants in Nash equilibrium. Used in: Why Factor Performance Decays: Understanding Alpha Decay and Crowding in Long-Term Investing

Factor investing: An investment approach that targets quantifiable characteristics (such as size, value, or momentum) that systematically explain differences in security returns across a portfolio. Used in: Why Factor Performance Decays: Understanding Alpha Decay and Crowding in Long-Term Investing

Factor premium: The excess return earned by securities exhibiting a particular factor characteristic, measured relative to the broad market over a defined period. Used in: Why Factor Performance Decays: Understanding Alpha Decay and Crowding in Long-Term Investing

Judgment factor: A factor requiring subjective interpretation of the underlying signal (such as value, where 'cheapness' admits multiple definitions), creating persistent disagreement and higher barriers to crowding. Used in: Why Factor Performance Decays: Understanding Alpha Decay and Crowding in Long-Term Investing

Lump-sum investing: Deploying an entire sum of capital into markets in a single transaction rather than over multiple periods. Used in: Dollar-Cost Averaging vs. Lump-Sum Investing: The Data and When Each Works

Margin of safety: A discount to intrinsic value or historical average valuation that provides a cushion against being wrong about future returns. Used in: Market Cycles Within Cycles: Why Portfolio Rebalancing Traps Long-Term Investors Into Selling Cheap

Mechanical factor: A factor with an unambiguous, easily replicated signal (such as momentum based on past price performance) that is quick to arbitrage once identified and widely crowded. Used in: Why Factor Performance Decays: Understanding Alpha Decay and Crowding in Long-Term Investing

Rebalancing: The practice of adjusting a portfolio's asset allocation back to its target weights by buying underweight positions and selling overweight ones. Used in: Market Cycles Within Cycles: Why Portfolio Rebalancing Traps Long-Term Investors Into Selling Cheap

Regret risk: The psychological discomfort of observing an alternative investment outcome that would have been superior, which may motivate emotional decision-making. Used in: Dollar-Cost Averaging vs. Lump-Sum Investing: The Data and When Each Works

Retention ratio: The percentage of net income a company retains and reinvests in the business rather than distributing as dividends; calculated as one minus the dividend payout ratio. Used in: Earnings Yield vs. Earnings Power: How Retention Ratio Reveals Which Cheap Stocks Actually Reinvest for Growth

Return on Equity (ROE): Net income divided by shareholders' equity; a measure of how efficiently a company generates profit from the capital invested by shareholders. Used in: Earnings Yield vs. Earnings Power: How Retention Ratio Reveals Which Cheap Stocks Actually Reinvest for Growth

Small-cap premium: The historical tendency of small-capitalization stocks to deliver higher average returns than large-capitalization stocks over long periods, documented in academic research on size factors. Used in: Market Cycles Within Cycles: Why Portfolio Rebalancing Traps Long-Term Investors Into Selling Cheap

Sustainable Growth Rate (SGR): The maximum annual growth rate a company can achieve using only internally generated earnings without raising external capital; calculated as retention ratio multiplied by return on equity. Used in: Earnings Yield vs. Earnings Power: How Retention Ratio Reveals Which Cheap Stocks Actually Reinvest for Growth

Threshold-based rebalancing: A rebalancing approach that triggers trades only when an asset class drifts beyond a predetermined percentage band from its target allocation, rather than on a fixed schedule. Used in: Market Cycles Within Cycles: Why Portfolio Rebalancing Traps Long-Term Investors Into Selling Cheap

Timing risk: The possibility that capital deployment occurs at an unfavorable point in a market cycle, resulting in suboptimal entry prices or immediate losses. Used in: Dollar-Cost Averaging vs. Lump-Sum Investing: The Data and When Each Works

Valuation gap: The difference in price-to-earnings ratios or other valuation metrics between two asset classes, used to measure relative cheapness or expensiveness. Used in: Market Cycles Within Cycles: Why Portfolio Rebalancing Traps Long-Term Investors Into Selling Cheap

Volatility: The degree of price fluctuation in a security or portfolio over a given time period, typically measured as standard deviation of returns. Used in: Dollar-Cost Averaging vs. Lump-Sum Investing: The Data and When Each Works

Futures

Buffer requirement: A minimum equity level a trader must maintain above their starting balance plus maximum drawdown to protect the firm against rapid account reversals and ensure withdrawal requests do not leave the account undercapitalized. Used in: Prop Firm Payout Cycles & Buffers: Why You Can't Withdraw All Your Profits Yet

Consistency rule: A risk management requirement that limits the percentage of total trading profit that can come from a single trading day, typically ranging from 20% to 50% depending on the firm and account stage. The rule is calculated as (Best Day Profit ÷ Total Profits) × 100. Used in: Consistency Rules at Different Prop Firms: Why the Math Matters More Than You Think, Prop Firm Payout Cycles & Buffers: Why You Can't Withdraw All Your Profits Yet

Contract multiplier: A standardized factor that converts a futures contract's quoted price into its dollar value per point or tick movement (e.g., $50 per point for ES, $20 per point for NQ). Used in: Notional Value vs. Margin: Why Margin Alone Blinds Prop Traders to Real Risk

Drawdown floor: The maximum loss from peak equity that a trader is permitted to experience before account restrictions or liquidation trigger; used in buffer calculations to determine accessible withdrawable amounts. Used in: Prop Firm Payout Cycles & Buffers: Why You Can't Withdraw All Your Profits Yet

End-of-day balance: The closing account equity at the end of a trading session; some prop firms use this as the reference point for trailing drawdown instead of intraday peak. Used in: Trailing Drawdown, Explained: Why a 25K Apex Is Not a 100K Apex

Equity: The total value of the trading account at any given moment, equal to the initial account balance plus or minus all realized and unrealized profits and losses. Used in: Trailing Drawdown, Explained: Why a 25K Apex Is Not a 100K Apex

Evaluation phase: The initial challenge period during which a trader must demonstrate profitability and adherence to all rules before gaining access to a funded trading account with firm capital. Used in: Consistency Rules at Different Prop Firms: Why the Math Matters More Than You Think

Funded account: A trading account provided by a prop firm after a trader successfully passes the evaluation phase, allowing live trading with firm capital subject to ongoing compliance with rules. Used in: Consistency Rules at Different Prop Firms: Why the Math Matters More Than You Think

Intraday peak: The highest account equity value reached during a single trading day, including unrealized profits on open positions; used by most prop firms as the reference point for trailing drawdown calculations. Used in: Trailing Drawdown, Explained: Why a 25K Apex Is Not a 100K Apex

Liquidation level: The account equity threshold below which the trading account is automatically closed by the prop firm; calculated as the highest equity point minus the trailing drawdown amount. Used in: Trailing Drawdown, Explained: Why a 25K Apex Is Not a 100K Apex

Liquidity depth: The quantity of contracts available to buy or sell at various price levels near the current market price; deeper liquidity allows larger orders to execute with less price movement. Used in: Execution Cost Mathematics: The Hidden Drain on Intraday Futures Profits

Margin requirement: The minimum deposit of capital a trader must maintain with a broker to hold an open futures position; distinct from notional value and does not represent total risk exposure. Used in: Notional Value vs. Margin: Why Margin Alone Blinds Prop Traders to Real Risk, How Much Capital Do You Actually Need to Trade Futures?

Micro contract: A futures contract representing one-tenth the notional exposure of the corresponding standard e-mini contract, enabling finer position sizing (e.g., MES vs. ES, MNQ vs. NQ). Used in: Notional Value vs. Margin: Why Margin Alone Blinds Prop Traders to Real Risk

Minimum trading days requirement: The mandatory number of trading sessions or calendar days a trader must complete before becoming eligible to request their first payout, intended to filter accounts that passed evaluation on chance rather than consistency. Used in: Prop Firm Payout Cycles & Buffers: Why You Can't Withdraw All Your Profits Yet

Notional value: The total dollar amount of market exposure represented by a futures position, calculated as contract price multiplied by contract multiplier and number of contracts held. Used in: Notional Value vs. Margin: Why Margin Alone Blinds Prop Traders to Real Risk

Payout eligibility: The calendar or performance-based window during which a trader becomes permitted to request a withdrawal, separate from the time required to process that withdrawal. Used in: Prop Firm Payout Cycles & Buffers: Why You Can't Withdraw All Your Profits Yet

Price impact: The immediate effect a trader's order has on market price by absorbing available liquidity, typically pushing prices up on buy orders or down on sell orders. Used in: Execution Cost Mathematics: The Hidden Drain on Intraday Futures Profits

Processing time: The interval between when a trader submits a payout request and when funds arrive in their designated account, varying by payment method (wire, ACH, crypto) and firm infrastructure. Used in: Prop Firm Payout Cycles & Buffers: Why You Can't Withdraw All Your Profits Yet

Profit split: The percentage of net trading profits paid to the trader, with the remainder retained by the prop firm; typically ranges from 50% to 95% depending on account tier and performance milestones. Used in: Prop Firm Payout Cycles & Buffers: Why You Can't Withdraw All Your Profits Yet

Prop firm evaluation: A trial period during which a trader demonstrates trading ability under the firm's rules and profit targets before gaining access to a funded account with real capital. Used in: Trailing Drawdown, Explained: Why a 25K Apex Is Not a 100K Apex

Tick value: The dollar amount gained or lost per minimum price movement (one tick) in a futures contract; used to calculate risk and position size at specific stop-loss distances. Used in: Notional Value vs. Margin: Why Margin Alone Blinds Prop Traders to Real Risk, Tick Size and Tick Value: The Foundation of Position Sizing

Trailing drawdown: A loss limit that follows account equity upward, preventing the account balance from falling below a specified dollar amount below the highest equity point reached during the evaluation period. Used in: Trailing Drawdown, Explained: Why a 25K Apex Is Not a 100K Apex

Use: The ratio of notional exposure to account equity; for example, controlling $250,000 notional value with a $50,000 account represents 5:1 use. Used in: Notional Value vs. Margin: Why Margin Alone Blinds Prop Traders to Real Risk

Quantitative

Backtest: Historical simulation of a trading strategy using past price and fundamental data to validate that its ranking rules possessed statistical edge before live deployment. Used in: Quant Core, Human Gate: An AI Investor-Committee for Daily Stock Plans

Backtesting: Historical simulation of a trading strategy using past price and volume data to evaluate its performance characteristics before live deployment. Backtests provide upper bounds on achievable returns and are sensitive to data-snooping bias, survivorship bias, and transaction costs. Used in: Auditing Your Own Edge: Results From a Cross-Asset Backtesting Program

Base rate: The historical frequency or statistical probability of an outcome in a defined population, used to anchor discretionary judgments against pure narrative reasoning. Used in: Quant Core, Human Gate: An AI Investor-Committee for Daily Stock Plans

Catalyst: A near-term, identifiable corporate or market event such as an earnings announcement, regulatory filing, or competitor action expected to influence a stock's price or valuation. Used in: Quant Core, Human Gate: An AI Investor-Committee for Daily Stock Plans

Confidence score: A quantitative ranking from 0 to 100 assigned to each stock by the system's backtested statistical engine, reflecting the strength of historical edge before any catalyst analysis. Used in: Quant Core, Human Gate: An AI Investor-Committee for Daily Stock Plans

Conviction: A 0-to-1 probability estimate assigned by the language-model committee layer reflecting confidence in the investment thesis after catalyst and risk research. Used in: Quant Core, Human Gate: An AI Investor-Committee for Daily Stock Plans

Lookahead bias: An error in backtesting where code accesses information that did not exist at the time a trading decision was made, typically through repainting or higher-timeframe data lookups, causing backtest results to overstate real-time performance. Used in: An Anti-Overfit Protocol for Strategy Backtesting on TradingView

Maximum drawdown: The largest cumulative loss from a previous peak to a subsequent trough in portfolio value, expressed as a percentage, measuring the severity of downside risk experienced during a period. Used in: Auditing Your Own Edge: Results From a Cross-Asset Backtesting Program

Momentum: A strategy that buys assets with the strongest recent price performance and sells those with the weakest, exploiting the empirical tendency of price trends to persist over intermediate time horizons. Used in: Auditing Your Own Edge: Results From a Cross-Asset Backtesting Program

Multiple-testing correction: A statistical adjustment that raises the significance threshold when many hypotheses are tested on the same dataset, reducing false-positive discoveries due to chance alone. Used in: Auditing Your Own Edge: Results From a Cross-Asset Backtesting Program

Overfitting: The tuning of strategy parameters until historical results appear profitable on the dataset used for optimization, without evidence the parameters will perform on unseen future data. Used in: An Anti-Overfit Protocol for Strategy Backtesting on TradingView

Pine Script v6: TradingView's proprietary scripting language for writing custom indicators and trading strategies executable on its charting platform. Used in: An Anti-Overfit Protocol for Strategy Backtesting on TradingView

Plan-only boundary: An operational constraint that restricts an AI agent to generating fully reasoned investment plans while forbidding it from executing, placing, or modifying real orders. Used in: Quant Core, Human Gate: An AI Investor-Committee for Daily Stock Plans

Profit factor: The ratio of total gross profit to total gross loss over a strategy's trade history; a value of 1.15 means cumulative wins are 15% larger than cumulative losses. Used in: An Anti-Overfit Protocol for Strategy Backtesting on TradingView

Repainting: A behavior in some charting libraries where indicator values recalculate on historical bars as new data arrives, causing backtests to show signals that would not have appeared in real time. Used in: An Anti-Overfit Protocol for Strategy Backtesting on TradingView

Selection bias: The contamination that occurs when multiple strategy variants are tested silently and only the best-performing variant is reported, ignoring the failed attempts that preceded it. Used in: An Anti-Overfit Protocol for Strategy Backtesting on TradingView

Sharpe ratio: A risk-adjusted performance metric calculated as average excess return divided by volatility (standard deviation), with higher values indicating better compensation per unit of risk taken. Used in: Auditing Your Own Edge: Results From a Cross-Asset Backtesting Program

Survivorship bias: Systematic overstatement of returns that occurs when historical analysis includes only assets that survived to the present, excluding those that delisted, failed, or were merged during the period. Used in: Auditing Your Own Edge: Results From a Cross-Asset Backtesting Program

Train/validation split: A methodological division of historical data into a training window used for parameter optimization and a validation window used for out-of-sample testing without parameter adjustment. Used in: An Anti-Overfit Protocol for Strategy Backtesting on TradingView

Walk-forward testing: A backtesting methodology that partitions historical data into sequential in-sample (training) and out-of-sample (validation) periods to simulate realistic model deployment and avoid lookahead bias. Used in: Auditing Your Own Edge: Results From a Cross-Asset Backtesting Program

Order Flow & Structure

Absorption: A market condition where large buy or sell orders are filled at a specific price level without causing significant price movement, indicating strong demand or supply at that level.

Used in: Cumulative Delta Divergence: The Signal When Price and Aggression Split

Bearish Divergence: A pattern where price makes a higher high but cumulative delta makes a lower high, indicating decreasing buying pressure and potential exhaustion of an uptrend. Used in: Cumulative Delta Divergence: The Signal When Price and Aggression Split

Breakaway gap: A gap that occurs at the beginning of a significant price trend and has a low probability of being filled, typically occurring on directional news. Used in: Gap Fill Probability: Why Most Gaps Don't Fill the Day They Open

Bullish Divergence: A pattern where price makes a lower low but cumulative delta rises, signaling hidden accumulation by buyers and potential reversal upward. Used in: Cumulative Delta Divergence: The Signal When Price and Aggression Split

Cognitive fatigue: The degradation in decision quality and execution discipline that accumulates over repeated rapid trading decisions within a single session or period. Used in: Scalping vs. Swing Trading: Which Math Works for Your Account

Cumulative Delta (CVD): A running total of the difference between market buy volume (orders executed at the ask) and market sell volume (orders executed at the bid), summed continuously over time to measure net order flow aggression. Used in: Cumulative Delta Divergence: The Signal When Price and Aggression Split

Delta: The difference between ask volume (aggressive buying) and bid volume (aggressive selling) at a given price level, used to infer directional participation and institutional intent. Used in: Volume Absorption: Reading Liquidity Walls Before Price Rejection

Delta Divergence: A mismatch between price movement direction and the directional conviction of buying or selling pressure, used to identify potential reversals or trend weakness before price confirms it.

Used in: Cumulative Delta Divergence: The Signal When Price and Aggression Split

Exhaustion: A market condition where aggressive order flow dries up as price reaches an extreme, causing reversals or stalls due to participant withdrawal rather than opposing institutional demand. Used in: Volume Absorption: Reading Liquidity Walls Before Price Rejection

Exhaustion gap: A gap that occurs near the end of a price move and has a high probability of being filled within days, signaling potential reversal. Used in: Gap Fill Probability: Why Most Gaps Don't Fill the Day They Open

Footprint chart: A price-by-price volume display showing bid volume (left) and ask volume (right) for each price level within a candle, revealing the directional aggression of market participants. Used in: Volume Absorption: Reading Liquidity Walls Before Price Rejection

Gap: A discontinuity between the closing price of one trading session and the opening price of the next, typically caused by overnight news or market events. Used in: Gap Fill Probability: Why Most Gaps Don't Fill the Day They Open

Gap fill: The subsequent price movement that closes the gap by returning price to the previous session's closing level. Used in: Gap Fill Probability: Why Most Gaps Don't Fill the Day They Open

Gap-and-go: A market condition where a large gap opens outside the previous day's range in volatile conditions and rarely fills intraday, indicating sustained directional momentum rather than mean reversion. Used in: Gap Fill Probability: Why Most Gaps Don't Fill the Day They Open

Globex: The CME's electronic trading platform where futures trade continuously outside regular trading hours, including overnight sessions between RTH close and open. Used in: Gap Fill Probability: Why Most Gaps Don't Fill the Day They Open

High Volume Node (HVN): A price level where trading activity clustered significantly higher than surrounding levels, often functioning as support or resistance where price consolidates. Used in: Volume Absorption: Reading Liquidity Walls Before Price Rejection

Liquidity wall: A concentration of passive limit orders at a specific price level designed to absorb incoming market orders without allowing price to advance significantly. Used in: Volume Absorption: Reading Liquidity Walls Before Price Rejection

Low Volume Node (LVN): A price level or zone where trading activity was minimal or absent, typically resulting in rapid price movement as the market searches for fair value. Used in: Volume Absorption: Reading Liquidity Walls Before Price Rejection

Order absorption: A market condition where large incoming aggressive orders are filled by passive limit orders at a price level with minimal or no price movement, indicating institutional defense of that level. Used in: Volume Absorption: Reading Liquidity Walls Before Price Rejection

Order Flow: The direction and magnitude of buying and selling activity in a market, revealed through volume and delta data rather than price alone. Used in: Cumulative Delta Divergence: The Signal When Price and Aggression Split, Fair Value Gaps: Reading Market Imbalances for Precise Entry Zones

Overnight gap risk: The possibility that a market will open at a materially different price than the previous close, potentially filling stop-loss orders at unfavorable prices due to news or events occurring after market hours. Used in: Scalping vs. Swing Trading: Which Math Works for Your Account

Position sizing: The allocation of capital to each trade, typically expressed as a percentage of account equity or fixed dollar amount, scaled to the risk per trade to manage portfolio drawdown. Used in: Scalping vs. Swing Trading: Which Math Works for Your Account, How Much Capital Do You Actually Need to Trade Futures?, Tick Size and Tick Value: The Foundation of Position Sizing

Risk-reward ratio: The ratio of potential loss per trade to potential profit, expressed as a ratio such as 1:3, which means risking one unit to target three units in return. Used in: Scalping vs. Swing Trading: Which Math Works for Your Account

RTH (Regular Trading Hours): The official market session for a futures contract, typically 9:30 a.m. To 4:00 p.m. ET for US equity index futures. Used in: Gap Fill Probability: Why Most Gaps Don't Fill the Day They Open

Scalping: A trading strategy involving rapid execution of positions held for seconds to minutes, typically using 1:1 to 1:1.5 risk-reward ratios and requiring win rates of 65-75%+ across 30+ trades per session to achieve profitability. Used in: Scalping vs. Swing Trading: Which Math Works for Your Account, Execution Cost Mathematics: The Hidden Drain on Intraday Futures Profits

Slippage: The difference between expected execution price and actual fill price, caused by latency, market movement during order transmission, or insufficient liquidity. Used in: Scalping vs. Swing Trading: Which Math Works for Your Account, Market Orders vs. Limit Orders: Why Your Order Type Matters More Than You Think, Execution Cost Mathematics: The Hidden Drain on Intraday Futures Profits

Swing trading: A strategy holding positions for days to weeks, using 3:1 to 5:1 risk-reward ratios and targeting profitability with win rates as low as 40%, with 3-5 trades per week and acceptance of overnight gap risk. Used in: Scalping vs. Swing Trading: Which Math Works for Your Account

Volume Profile: A graphical representation showing the concentration of trading volume at specific price levels, used to identify support and resistance zones where significant trading activity occurred. Used in: Cumulative Delta Divergence: The Signal When Price and Aggression Split

Win rate: The percentage of closed trades that generate profit, mathematically linked to risk-reward ratio to determine whether a strategy achieves profitability after accounting for transaction costs. Used in: Scalping vs. Swing Trading: Which Math Works for Your Account, The Kelly Criterion vs. Fixed Risk: Which Sizing Method Works for Prop Traders

Price Action (ICT / SMC)

Confluence: The alignment of multiple technical or structural signals such as FVG, order block, and session open that increases the probability of a trading outcome. Used in: Fair Value Gaps: Reading Market Imbalances for Precise Entry Zones

Fair value gap (FVG): A price zone created when the market moves aggressively without trading all intermediate price levels, leaving unfilled orders that can attract price to retrace. FVGs form from the three-candle structure where the first and third candles do not overlap, creating an untouched gap. Used in: Fair Value Gaps: Reading Market Imbalances for Precise Entry Zones

Liquidity sweep: A price movement that triggers stop-loss orders in a particular zone, typically used in smart money concepts to identify institutional activity and order flow patterns. Used in: Fair Value Gaps: Reading Market Imbalances for Precise Entry Zones

Market maker: A participant who facilitates trading by simultaneously quoting bid and ask prices, providing liquidity to match buyers with sellers, especially during large institutional trades. Used in: Fair Value Gaps: Reading Market Imbalances for Precise Entry Zones

Order block: A zone of significant buying or selling pressure visible on a price chart, often used as a structural reference point for future support or resistance in confluence with FVGs.

Used in: Fair Value Gaps: Reading Market Imbalances for Precise Entry Zones

Smart money: A practitioner concept referring to institutional or professional traders whose large orders and strategic price moves are tracked to identify market structure and inform entry decisions. Used in: Fair Value Gaps: Reading Market Imbalances for Precise Entry Zones

Key definitions

Glossary: An alphabetical reference of terms with their definitions and the sources that use them.

References

Educational research on historical data only. Not investment advice, not a signal, and never a performance promise. Past results do not predict future performance. Every reference is link-verified before publication and every paper is re-audited weekly against the library's editorial standard.

Last reviewed by the PropLedger research pipeline: 2026-08-26. Educational research on historical data, not financial advice.