ATR (average true range)

A measure of how much a market typically moves over a period, based on the range of recent candles. It is often used to set stop distances that adapt to volatility. Read the guide.

Backtest

A replay of a strategy on historical data to see how its rules would have performed. It reduces the risk of trading something that never worked but does not guarantee future results. Read the guide.

Break-even win rate

The win rate at which a strategy neither gains nor loses. It equals 1 divided by 1 plus the risk to reward ratio, so it is 50 percent at 1 to 1 and 33.3 percent at 2 to 1, before costs. Read the guide.

Candle

A bar on a price chart that summarizes one period with its opening, highest, lowest and closing prices. A closed candle is one whose period has ended. Read the guide.

Drawdown

The decline of an account from a peak to a following low, usually shown as a percentage of the peak. Read the guide.

Expectancy

The average result of a trade over many trades, usually expressed in R. It equals the win rate times the average win, minus the loss rate times the average loss. A positive value means the strategy made money on average. Read the guide.

Leverage

The use of borrowed exposure to control a position larger than the capital deposited. It magnifies gains and losses, and losses can exceed the deposit on some products.

Look-ahead bias

An error in which a test uses information that was not available at the time of the decision, which makes results look better than they could have been in real trading. Read the guide.

Lot

The standard unit of trade size in forex. A standard lot is 100,000 units of the base currency. Read the guide.

Margin

The amount of capital a broker holds as collateral for a leveraged position.

Market regime

The prevailing behaviour of a market, such as a trend, a range or a transition between the two. Many strategies work in one regime and fail in another.

Maximum drawdown

The largest drawdown observed over the whole period measured. It is the worst decline so far, not a limit. Read the guide.

Monte Carlo simulation

A method that redraws the trades of a strategy many times, in different orders, to show the range of outcomes and how much of a result depends on luck. Read the guide.

Out-of-sample test

A test on data that was not used to design or tune the strategy. A result that holds out of sample is much more credible than one measured on the data used to build it. Read the guide.

Overfitting

Tuning a strategy so closely to past data that it captures noise instead of a lasting pattern. An overfitted strategy looks excellent in a backtest and fails on new data. Read the guide.

Pip

The usual unit of price movement in forex. For most pairs it is 0.0001, and for pairs quoted in yen it is 0.01. Read the guide.

Position sizing

The choice of how large a trade is. A common method risks a fixed percentage of the account, so the position size equals the amount at risk divided by the loss per unit at the stop. Read the guide.

Profit factor

Gross profit divided by gross loss over a period. A value above 1 means the winners outweighed the losers in total. Read the guide.

R multiple

A trade result expressed as a multiple of the amount risked. A trade that wins twice its risk is +2 R, and a trade stopped out at the planned level is -1 R. Read the guide.

Risk of ruin

The probability that an account falls below a level that ends trading. It depends on the win rate, the risk to reward ratio and the share of the account risked on each trade. Read the guide.

Risk to reward ratio

The reward targeted on a trade divided by the risk taken. A trade that risks 1 to make 2 has a risk to reward ratio of 2. Read the guide.

Sample size

The number of trades behind a statistic. The margin of error of a win rate shrinks with the square root of the sample size, so small samples are unreliable. Read the guide.

Slippage

The difference between the price expected for an order and the price at which it is filled. It tends to be larger in fast markets. Read the guide.

Spread

The difference between the buying price and the selling price of an instrument. It is a cost paid on every trade. Read the guide.

Stop loss

An order or a level that closes a trade at a planned loss. The distance from entry to stop defines 1 R. Read the guide.

Swap

The interest paid or earned for holding a leveraged position overnight. It depends on the instrument and on the direction of the trade. Read the guide.

Take profit

An order or a level that closes a trade at a planned gain. In the platform strategies of ATLAS the target is set at 2 R. Read the guide.

Win rate

The share of trades that end in profit. It says nothing about the size of wins and losses, so it must be read together with the risk to reward ratio or the expectancy. Read the guide.