Advanced Concepts

An asset is any resource with economic value that can be traded, such as currencies, stocks, commodities, or bonds. In forex, currencies are the primary asset class.

Backtesting is testing a trading strategy on historical data to see how it would have performed. It validates your edge, reveals win rate, risk/reward, and drawdown before risking real money. Minimum 100 trades over 1-2 years is recommended for reliable results.

Commodities are raw materials like gold, oil, and agricultural products. They significantly influence commodity currencies like CAD, AUD, and NZD.

A derivative is a financial contract whose value derives from an underlying asset. Most retail forex trading uses CFDs (Contracts for Difference), a type of derivative.

Dovish describes a central bank policy stance favoring lower interest rates to stimulate economic growth. When central bankers are dovish, they prioritize employment and growth over inflation control, which typically weakens the currency.

Edge is a statistical advantage that makes your strategy profitable over many trades. It comes from superior analysis, execution, risk management, or psychology - not luck.

Expectancy is a formula that calculates the average amount you can expect to win or lose per trade over many trades. Positive expectancy means your trading system is profitable long-term. Formula: (Win% × Avg Win) - (Loss% × Avg Loss).

Fibonacci retracement uses horizontal levels (23.6%, 38.2%, 50%, 61.8%, 78.6%) to identify potential support/resistance during pullbacks in trends. Traders draw from swing high to low (or vice versa), watching for price reactions at Fibonacci levels to enter trades.

Forward testing validates a strategy in live market conditions after backtesting, using demo or small-risk trades to confirm fills, slippage, and trader discipline before scaling up.

Hawkish describes a central bank policy stance favoring higher interest rates to combat inflation. When central bankers are hawkish, they prioritize price stability over economic growth, which typically strengthens the currency by attracting foreign investment.

Longevity means protecting capital so you can trade for years, emphasizing disciplined risk sizing, controlled leverage, and sustainable routines over short-term excitement.

A trading portfolio is the collection of strategies and positions you manage together, allowing you to diversify edges, balance correlations, and monitor performance metrics beyond single trades.

Profit factor is a performance metric calculated by dividing gross profit by gross loss, with values above 1.0 indicating profitable systems and higher numbers showing stronger edges.

The Quasimodo pattern is a market structure trap where price makes a false breakout before reversing, forming a distinctive shoulder-head-shoulder sequence.

An R-multiple expresses a trade outcome as a multiple of the initial risk, making performance comparisons consistent across markets and strategies.

A security is a tradable financial asset—equity, debt, or derivative—that represents ownership, creditor claims, or contractual rights between market participants.

Standard deviation measures how far price deviates from its average, forming the backbone for volatility tools and risk management metrics.

Top-down analysis evaluates markets from higher to lower time frames, aligning macro bias with tactical execution levels.

Win rate is the percentage of trades closed with profit, calculated as winning trades divided by total trades, but meaningless without considering average win and loss sizes.