Basic Concepts

Core Concepts

• Crossover — A signal generated when one indicator line crosses another — simple to code, easy to overuse. Raw crossovers whipsaw badly in choppy markets. They need context to be useful.
• Trend Filter — A condition that restricts entries to markets trending in your favour. One of the highest-return improvements you can make to most strategies — it doesn't improve the entry signal, it improves which environment it fires in.
• Trailing Stop — A dynamic stop-loss that moves with price in the direction of the trade, locking in profits as the trend continues.
• Mean Reversion — A trading approach built on the idea that extreme moves tend to reverse toward the average. It works well in ranging conditions and fails badly in trending ones — knowing the difference is the entire challenge.
• Divergence — When price makes a new extreme but an indicator like RSI doesn't confirm it, suggesting the move is losing momentum. Widely discussed and genuinely difficult to trade — divergence can persist far longer than expected before it resolves.
• Breakout — A price move beyond a defined level — resistance broken, range escaped. Straightforward to code, hard to trade well. False breakouts are common in choppy markets; context and confirmation separate the real moves from the noise.
• Session Timing — Using specific session times — the open, the overlap between markets, the close — to define when a strategy is allowed to trade. Session timing is one of the most underrated filters in systematic trading.
• Risk/Reward Ratio — The ratio of potential loss to potential gain on a trade. A 1:2 ratio means you risk 1 to make 2. Traders fixate on win rate when they should be thinking about this — a 30% win rate with a good ratio beats a 70% win rate with a bad one.