Glossary
Financial and trading terms used throughout the AlphaOracle system.
ADV (Average Daily Volume)
The average number of shares traded per day over a specified period (typically 20-30 days). Used to assess liquidity and determine appropriate order sizing. The system’s smart order router uses ADV to decide between market, limit, and TWAP orders.
Alpha
Excess return of a strategy relative to a benchmark index (like the S&P 500). Positive alpha indicates outperformance. The system tracks alpha for each strategy to measure value added beyond market returns.
ATR (Average True Range)
A volatility indicator measuring the average range between high and low prices over a period. Used for position sizing and stop-loss placement. Higher ATR suggests more volatile price action.
Backtest
Simulating a trading strategy on historical data to evaluate performance before risking real capital. The system uses Backtrader and VectorBT for backtesting with point-in-time data to avoid look-ahead bias.
Beta
Measure of a stock’s volatility relative to the overall market. Beta > 1 means more volatile than market, beta < 1 means less volatile. Used in portfolio construction to manage systematic risk.
Bollinger Bands
Technical indicator consisting of a moving average with upper and lower bands set at standard deviations above and below. Used to identify overbought/oversold conditions and volatility expansion/contraction.
Bracket Order
An order that includes both a profit target (limit order) and a stop-loss, creating a “bracket” around the entry price. Manages both upside and downside risk automatically.
Circuit Breaker
Automatic trading halt triggered by specific risk conditions. The system implements circuit breakers for high VIX (>35), excessive drawdown, stale data, and failed reconciliation checks.
Day Trade
Opening and closing a position in the same security on the same trading day. Retail accounts under $25K are limited to 3 day trades per rolling 5 business days under the PDT rule.
Drawdown
Peak-to-trough decline in portfolio value. Current drawdown measures the percentage drop from the highest point. The system’s circuit breakers trigger at 10% max drawdown.
EMA (Exponential Moving Average)
A moving average that gives more weight to recent prices, making it more responsive to new information than a simple moving average. Widely used in momentum and trend-following strategies.
Equity Curve
A chart showing portfolio value over time. Used to visualize performance, identify drawdown periods, and assess consistency. A smooth upward curve indicates stable returns.
Fill
Execution of an order at a specific price. The fill price may differ from the order price for market orders. The system’s execution quality tracker monitors fill prices versus prevailing bid/ask.
Float
The number of shares available for public trading (excluding insider holdings and restricted shares). Low float stocks tend to be more volatile and may have wider bid-ask spreads.
Form 4
SEC filing reporting insider transactions (buys/sells by officers, directors, and 10%+ owners). The system ingests Form 4 data as an alternative signal since insider buying can indicate confidence.
Fundamental Analysis
Evaluation of a company’s financial health using metrics like P/E ratio, revenue growth, profit margins, and debt levels. The system combines fundamental features with technical indicators.
Half-Kelly
Position sizing method using half the Kelly Criterion optimal fraction. Provides most of Kelly’s growth rate with significantly less volatility. The system uses Half-Kelly for conservative position sizing.
Insider Trading (Legal)
Legal purchases or sales of company stock by corporate insiders (officers, directors) reported via Form 4. Distinct from illegal insider trading based on material non-public information.
Kelly Criterion
Mathematical formula for optimal position sizing based on win rate and average win/loss ratio. Maximizes long-term growth rate but can be aggressive. The system uses Half-Kelly for better risk management.
Limit Order
Order to buy or sell at a specified price or better. Provides price certainty but not execution certainty. The system uses limit orders for less liquid stocks or when execution urgency is low.
MACD (Moving Average Convergence Divergence)
Trend-following momentum indicator showing the relationship between two moving averages (typically 12-day and 26-day EMA). Crossovers and divergences generate buy/sell signals.
Market Cap
Total value of a company’s outstanding shares (price × shares). Used to classify stocks (large-cap >$10B, mid-cap $2-10B, small-cap <$2B). The system filters for minimum market cap to ensure liquidity.
Market Order
Order to buy or sell immediately at the best available price. Guarantees execution but not price. The system uses market orders for highly liquid stocks when urgency is high.
Max Drawdown
Largest peak-to-trough decline in portfolio value over a specified period. Key risk metric; the system halts trading at 10% max drawdown via circuit breakers.
OHLCV
Open, High, Low, Close, Volume - the five standard data points for each trading period. Forms the foundation for technical analysis and backtesting.
P&L (Profit and Loss)
The net gain or loss on your portfolio or individual positions. Daily P&L measures today’s change; total P&L measures cumulative performance. Unrealized P&L is on open positions; realized P&L is on closed trades.
PSI (Population Stability Index)
A statistical measure used to detect when the data distribution feeding the ML model has shifted significantly from what it was trained on. PSI < 0.1 indicates stable data, 0.1-0.25 indicates moderate drift, and > 0.25 indicates significant drift that may require model retraining.
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. Measures valuation relative to profitability. Low P/E may indicate undervaluation, high P/E may signal growth expectations or overvaluation.
PDT (Pattern Day Trader)
FINRA regulation requiring $25K minimum balance for accounts making 4+ day trades within 5 business days. The system’s PDT guard enforces the 3 day trade limit for sub-$25K accounts.
Point-in-Time (PIT)
Data as it existed at a specific historical date, preventing look-ahead bias. The system’s feature store ensures all features use point-in-time data for accurate backtesting.
Position Sizing
Determining how many shares to buy based on account size, risk tolerance, and signal strength. The system uses Half-Kelly sizing with maximum 5% per position and sector limits.
Profit Factor
Ratio of gross profits to gross losses. A profit factor of 2.0 means winning trades generated twice as much profit as losing trades lost. Values above 1.5 are generally considered good.
RSI (Relative Strength Index)
Momentum oscillator ranging from 0-100, measuring speed and magnitude of price changes. Values above 70 suggest overbought conditions, below 30 suggest oversold. Used to identify reversal opportunities.
Sector Exposure
Percentage of portfolio allocated to each market sector (Technology, Healthcare, Financials, etc.). The system limits sector concentration to 25% to reduce sector-specific risk.
Sharpe Ratio
Risk-adjusted return metric: (portfolio return - risk-free rate) / portfolio volatility. Higher Sharpe indicates better risk-adjusted performance. Values above 1.0 are considered good, above 2.0 excellent.
Short Interest
Percentage of float sold short by investors. High short interest can lead to short squeeze volatility. The system ingests FINRA short interest data as an alternative signal.
Signal
Algorithmic recommendation to buy, sell, or hold a security. Generated by technical indicators, fundamental analysis, or ML models. Signals include confidence scores and rationale.
Slippage
Difference between expected execution price and actual fill price. Results from market impact, volatility, and liquidity constraints. The system’s execution quality tracker monitors slippage.
Sortino Ratio
Risk-adjusted return metric similar to Sharpe but only penalizes downside volatility. Preferred by many traders since upside volatility is desirable. Higher values indicate better downside-adjusted returns.
Stop-Loss
Order that automatically sells a position when price falls to a specified level, limiting losses. The system uses ATR-based stop-losses to adapt to volatility.
Swing Trading
Holding positions for multiple days to weeks to capture medium-term price moves. Contrasts with day trading (intraday) and position trading (months/years). Primary strategy for this system.
Technical Analysis
Studying price charts, patterns, and indicators to forecast future price movements. Based on the premise that historical price action contains predictive information.
TWAP (Time-Weighted Average Price)
Execution algorithm that splits a large order into smaller chunks executed at regular intervals. Reduces market impact for illiquid stocks or large positions relative to ADV.
Unrealized P&L
Profit or loss on open positions based on current market prices. Becomes realized P&L when the position is closed. The dashboard displays both realized and unrealized P&L.
VIX
CBOE Volatility Index measuring expected 30-day S&P 500 volatility based on option prices. VIX > 20 indicates elevated fear, VIX > 35 triggers circuit breakers in the system.
Volume
Number of shares traded during a period. High volume confirms price moves, low volume suggests weak conviction. Volume analysis helps validate breakouts and identify accumulation/distribution.
Walk-Forward Validation
Backtesting method that trains a model on historical data, tests on subsequent unseen data, then rolls forward. Prevents overfitting by simulating real-world model deployment. The system uses walk-forward validation for ML model training.
Win Rate
Percentage of trades that are profitable. A 60% win rate means 6 out of 10 trades were winners. Must be considered alongside profit factor and risk/reward ratio for full picture.
XGBoost
Gradient boosting machine learning algorithm optimized for speed and performance. The system uses XGBoost to generate ML signals based on 50+ technical, fundamental, and alternative features.