Glossary — AlgoThink

Perpetual futures: A derivative contract that tracks an asset's price with no expiry date, unlike traditional futures. Positions are held with margin and leverage rather than owning the underlying coin.
Funding rate: A periodic payment between long and short holders of a perpetual contract that keeps its price tethered to the spot market. Paid or received every few hours depending on which side you're on.
Isolated margin: Margin mode where the collateral backing a position is capped to what you've allocated to it — a loss on that position can't spill over and liquidate the rest of your account.
Leverage: Borrowing to control a larger position than your own capital would allow. Leverage of 3x means a 1% move in the underlying moves your position by roughly 3% — in either direction.
Liquidation: The forced closing of a leveraged position by the exchange when losses erode the margin backing it below a maintenance threshold — the fastest way to lose an entire position's collateral.
Maker / taker: A maker order adds liquidity to the order book (a limit order that waits to be filled); a taker order removes it (filling immediately against an existing order). Exchanges usually charge takers a higher fee.
Slippage: The difference between the price you expected and the price you actually got, usually because the market moved or there wasn't enough depth at your price between placing and filling an order.
Spread: The gap between the best bid (highest buy offer) and best ask (lowest sell offer) on the order book. A wide spread is a sign of thin liquidity and higher effective trading cost.
ATR (Average True Range): A volatility measure: the average size of a coin's price range over recent candles. Used to size stops and targets relative to how much a coin actually moves, rather than a fixed percentage.
RSI (Relative Strength Index): A momentum oscillator from 0–100 that measures how fast and how far price has recently moved, commonly used to flag overbought or oversold conditions.
ADX (Average Directional Index): Measures how strongly a market is trending, regardless of direction. A low ADX suggests choppy, range-bound price action; a high ADX suggests a sustained trend.
SMA (Simple Moving Average): The average closing price over a fixed number of recent candles (e.g. SMA20 = the last 20). Smooths out noise to show the underlying trend direction.
Regime: The broad character of the current market — trending, choppy, or reverting — used to judge whether a given strategy's approach even fits what the market is currently doing.
Bracket order: An entry paired with a stop loss and take profit set at the same time, so the position's risk and target are defined before it's even opened.
Stop loss: A price level at which a losing position is automatically closed to cap further loss.
Take profit: A price level at which a winning position is automatically closed to lock in the gain.
Risk:reward (R:R): The ratio between what a trade risks (distance to its stop) and what it targets (distance to its take profit). An R:R of 1.67 means the target is 1.67 times further away than the stop.
Trailing stop: A stop loss that moves in the trade's favor as price advances, locking in gains without capping the upside the way a fixed take profit would.
Drawdown: The decline from an equity curve's most recent peak to its current value — the standard way to measure how deep a losing stretch got, not just whether the overall result was positive.
Sharpe ratio: Return earned per unit of volatility taken on. Higher is better-compensated risk; a strategy can have a positive return and still have a poor Sharpe ratio if it got there by taking on huge swings.
Probabilistic Sharpe ratio (PSR): The probability that a strategy's true Sharpe ratio exceeds a chosen benchmark, given the length and skew of its track record — a short or lucky-looking record earns a low PSR even with a decent raw Sharpe. This is the statistic behind AlgoThink's walk-forward PASS/FAIL bar, and the bar itself is raised (Bonferroni-adjusted) by how many strategies were tested, so testing more recipes can't buy a PASS on luck alone.
Deflated Sharpe ratio (DSR): A Sharpe ratio adjusted for how many independent strategy variants were tried before finding this one, benchmarked against the best Sharpe you'd expect from pure noise across that many trials — because testing enough variations of anything eventually turns up a good-looking result by chance. AlgoThink uses DSR, not PSR, as the eligibility bar for its large-scale strategy search — a deliberately harder bar than the one live strategies are held to, reserved for screening brand-new ideas before they're even considered.
Walk-forward validation: Testing a strategy by repeatedly training it on one stretch of history and evaluating it on the stretch immediately after, rolling forward through time — a closer approximation of trading live than testing once on the whole history at once.
Out-of-sample: Data the strategy was evaluated on but never used to tune its own rules or parameters — the only kind of result that says anything about future performance rather than how well it memorized the past.
Overfitting: Tuning a strategy so closely to historical data that it captures noise specific to that history rather than a real, repeatable pattern — it looks excellent on a backtest and fails on new data.
Paper trading: Trading a simulated balance against real, live market prices — fees and slippage modeled — with no real money at risk.
Position sizing: Deciding how much capital to put into a given trade, typically scaled so that if the stop is hit, the loss equals a fixed, chosen fraction of your account rather than a fixed dollar amount.
Correlation exposure: Holding several positions that would all move against you at once because the underlying coins tend to rise and fall together — diversification in name only if the correlation is high enough.

Trading terms, in plain language.

See these terms in action.