Quantzee Glossary
Trading Glossary — Key Terms for Algo & Options Traders
Clear, practitioner-focused definitions of the concepts behind AI-powered TradingView indicators — from backtesting and Pine Script to options Greeks, risk metrics, and market microstructure.
Quant & Algo Trading Core
Algorithmic Trading
Algorithmic trading is the use of computer programs to execute trades based on predefined rules, removing emotion from the process and enabling systematic, repeatable strategy execution.
Alpha (Trading)
Alpha is the excess return of a trading strategy above its benchmark after adjusting for market risk — the measure of genuine skill versus simply riding the market.
Backtesting
Backtesting is the process of testing a trading strategy on historical price data to measure how it would have performed before risking real capital.
Mean Reversion
Mean reversion is the tendency of asset prices to return toward a historical average after an extreme move — the strategic foundation behind range trading, pairs trading, and options premium selling.
Momentum Trading
Momentum trading is the strategy of buying assets that are rising and selling those that are falling, based on the empirical observation that price trends tend to persist in the short to medium term.
Overfitting in Trading
Overfitting in trading is when a strategy is tuned so precisely to historical data that it captures noise instead of genuine market edge, causing it to fail in live markets.
Walk-Forward Testing
Walk-forward testing is a validation method that optimizes a strategy on a rolling in-sample window and tests it on the immediately following out-of-sample period, simulating real-world strategy development.
Options Trading
Implied Volatility
Implied volatility is the market's forward-looking expectation of price movement embedded in options prices — when IV is high, options are expensive; when IV is low, options are cheap.
Iron Condor
An iron condor is a defined-risk options income strategy that sells an OTM call spread and an OTM put spread simultaneously, profiting when the underlying stays within a range until expiry.
Open Interest
Open interest is the total number of outstanding options or futures contracts that have not been settled or closed — it measures market participation and liquidity at each strike and expiry.
Options Greeks
Options Greeks (Delta, Gamma, Theta, Vega, Rho) are the sensitivity measures that quantify how an option's price changes in response to movements in the underlying price, time, and volatility.
Put-Call Ratio
The put-call ratio compares put option volume to call option volume — high ratios signal excessive bearish sentiment that often precedes market bounces; low ratios signal excessive bullishness that often precedes corrections.
Straddle vs Strangle
A straddle buys or sells a call and put at the same strike; a strangle uses different strikes. Both are volatility strategies — the choice between them trades off premium cost against probability of profit.
Theta Decay
Theta decay is the daily erosion of an option's time value as it approaches expiry — a direct benefit to options sellers and a constant cost to options buyers.
Python for Trading
Backtrader
Backtrader is an open-source Python framework for backtesting and live trading strategies, offering event-driven simulation, multiple data feeds, and flexible strategy development.
Pine Script
Pine Script is TradingView's proprietary scripting language for creating custom indicators, strategies, and alerts directly on the platform's charts.
Sharpe Ratio
The Sharpe Ratio measures a strategy's return per unit of risk — it is the universal benchmark for comparing trading systems on a risk-adjusted basis, regardless of absolute return level.
Vectorbt
Vectorbt is a high-performance Python backtesting library that uses NumPy vectorization to run thousands of parameter combinations simultaneously — making it orders of magnitude faster than traditional loop-based backtesting frameworks.
Risk Management
Kelly Criterion
The Kelly Criterion is a mathematical formula that calculates the optimal fraction of capital to bet on each trade to maximize long-run growth, based on win rate and payoff ratio.
Max Drawdown
Max drawdown is the largest peak-to-trough decline in a portfolio or strategy's equity curve, expressed as a percentage — the definitive measure of a strategy's worst historical loss.
Position Sizing
Position sizing is the process of calculating how many units of an asset to trade on each signal, controlling capital at risk per trade to protect the overall account from large drawdowns.
Risk-Reward Ratio
The risk-reward ratio compares how much capital you risk losing on a trade to how much you stand to gain — a 1:2 ratio means risking $1 to potentially earn $2.
Stop Loss
A stop loss is a pre-defined price level at which you exit a losing trade to cap the maximum loss — the non-negotiable risk management tool that separates professional traders from gamblers.
Market Microstructure & Data
Liquidity in Markets
Market liquidity is how easily an asset can be bought or sold at a stable price without significantly moving the market — high liquidity means tight spreads and deep order books; low liquidity means high slippage and volatile fills.
Market Depth
Market depth (Level 2 data) is the real-time view of all pending buy and sell orders at every price level in the order book — it reveals supply and demand imbalances before they appear in price.
OHLCV Data
OHLCV data is the standard format for representing price history — Open, High, Low, Close, and Volume for each time period — forming the raw input for virtually every technical indicator and backtesting system.
Order Flow
Order flow is the real-time stream of buy and sell orders entering the market — analyzing it reveals where institutional participants are positioning and where significant support or resistance is likely to form.
Slippage
Slippage is the difference between your expected trade fill price and the actual price you get — a hidden execution cost that systematically overstates backtested performance if not modeled correctly.
Tick Data vs Bar Data
Tick data records every individual transaction with exact price, time, and volume; bar data aggregates all trades into fixed OHLCV periods — the tradeoff is granularity versus manageability.
Strategy & Indicators
ATR (Average True Range)
ATR (Average True Range) is a volatility indicator that measures the average price range of a market over N periods, used to set stops, size positions, and filter low-volatility signals.
CPR (Central Pivot Range)
CPR (Central Pivot Range) is a three-level price framework — Pivot, Top CPR, and Bottom CPR — that defines the key price zone where market direction is decided each session.
RSI (Relative Strength Index)
The RSI is a momentum oscillator that measures the speed and magnitude of recent price changes on a 0–100 scale, identifying overbought conditions above 70 and oversold below 30.
Supertrend Indicator
The Supertrend indicator is a trend-following overlay that uses ATR-based bands to plot a dynamic support/resistance line, signaling trend direction with a single color flip.
Support and Resistance
Support and resistance are price zones where buying or selling pressure has historically been strong enough to pause or reverse a trend — the foundational framework of technical analysis.
VWAP
VWAP (Volume-Weighted Average Price) is the average price of an asset weighted by trading volume — the institutional benchmark for execution quality and a widely-used intraday support/resistance level.
From Theory to Live Signals
Quantzee's AI-powered indicators turn these concepts into non-repainting signals and real-time alerts on TradingView.
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