Glossary of Terms will help you to quickly learn the mening of terms that are commonly used in exchange trading. The dictionary is continuously updated, also based on suggestions and requests of our users. Send us the terms that you would like to find in our Glossary of Terms.
Ask reflects a current offering price, for which a trader can buy an underlying asset at a market price, and a total quantity of the underlying asset . See more at Bid-AskS pread.
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ATR stands for “Average True Range“. It is an indicator which measures a market volatility. ATR is calculated as exponential moving average (EMA) of “TrueRange” values. An advantage of this indicator is that ATR is a time variable and reflects current market dynamics. It is applicable to many strategies, e.g. for setting up Profit Target, Stop Loss, etc. as a multiplicator of ATR value. Many traders use ATR in breakout strategies for setting up an entry level from pre-defined value (e.g. an entry value for BUY long can be set as an arithmetic average of last 10 CLOSE values plus ATR(7)).
For the first time this indicator was introduced by J. Welles Wilder Jr. in the book „New Concepts in Technical Trading Systems“.
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Backtest is a system used to test a trading strategy on historical data. The aim of this methodology is to evaluate whether a given trading strategy has a potential for live trading. Backtests enable to learn trading without a risk of losing capital. There are 2 main types of backtests:
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Bid price reflects a current demand, for which the trader may sell an underlying asset at a market price, and the total quantity of the underlying asset. See more at Bid-Ask Spread.
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Breakeven is so called limit value. It is the price at which we entered into the trading position. If the trade is in a long position and the price of an underlying asset is higher than the breakeven then the trade is in open profit and vice versa for short position. If the trade is in the long position and the price of the underlying asset is lower than the breakeven value then we are in open loss and vice versa for short position. Breakeven is often associated with stop-loss. If the last price of the underlying asset is higher than the breakeven and we move our stop-loss to breakeven value, then we bear no more risk of potential loss because we moved the stop-loss at the entry price.
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Broker is an individual or firm which ensures the trade between the purchase and sale of underlying assets (futures, stocks etc..). When the trade is executed the broker gets a commission. Among the best priced and best-known brokers belong companies as Interactive Brokers and Tradestation Securities.
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Bull Market is an equivalent of market in uptrend where each HIGH and LOW is higher than the previous HIGH and LOW. The term Bull Market is based on the traditional exchange terminology. The background explanation of this definition is simple. When the bull attacks and horns his rival he stands up on his hind legs.
As an equivalent of the Bull Market we can also use the term long market. The opposite of the Bull Market is the Bear Market.
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Dax (Deutscher Aktienindex) is a stock market index representing the 30 largest and most liquid German companies (e.g. Allianz, Commerzbank, Siemens, Volkswagen, etc.), which are traded on the Frankfurt Exchange. DAX can be regarded as an alternative to the trading of U.S. stock market indexes. The inhabitants of EU may appreciate it is traded in EUR. DAX is definitely not suitable for the beginners because the market is very volatile.
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Drawdown can be expressed as an amount of money or as a percentage of the largest decline in capital through our live trading or historical backtest. Its value or a multiple of this value is often used to determine the initial capital of trading account for live trading as well as to determine the maximum acceptable risk before the trader starts with live trading.
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Exchange is a highly organized and strictly regulated market where various underlying assets such as stocks, commodities, currencies, ETFs, etc. get traded (bought and sold). The exchange brings together buyers and sellers. The trades have a form of bilateral agreements and the final price of an underlying asset is determined by current bid and ask.
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Profit Factor (PF) is one of the most important performance indicators of a trading system quality. PF is counted as the sum of all profitable trades (Gross Profit) divided by the absolute value of the sum of all losing trades (Gross Loss).
Formula for PF calculation:
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The True Range is calculated as the highest value of three values below:
The values of true range are used for calculating Average True Range (ATR).
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