Glossary
Algo trading terms, defined properly
40 concepts every systematic trader in India runs into — each defined in one standalone sentence, then explained with real ₹ and NIFTY examples. Start anywhere; every term links to its neighbours and to the platform feature where you can see it live.
Basics
- Algorithmic Trading
- Algorithmic trading uses computer programs to place trades by predefined rules. How it works on NSE, who can do it, and how retail traders start.
- BTST
- BTST means buying shares today and selling them the next session, before delivery settles into your demat. How it works on NSE and where the risks sit.
- MTM
- MTM, or mark to market, is the running profit or loss of a position revalued at current market price. How daily MTM settlement works in NSE futures.
- Square Off
- Square off means closing an open position so net exposure is zero. How intraday auto square-off works with Indian brokers and why algos exit earlier.
Backtesting & Analytics
- Backtesting
- Backtesting runs a strategy's rules on historical data to measure how it would have performed. What a good NSE backtest includes and what it can miss.
- CAGR
- CAGR is the compound annual growth rate — the steady yearly rate at which capital grew from start to end. Formula with a rupee example for traders.
- Drawdown
- A drawdown is the decline in account equity from a peak to a later low. How dips in the equity curve arise and why every strategy has them.
- Forward Testing
- Forward testing validates a strategy on new, unseen market data after the backtest — live or simulated. Why it exposes curve-fit strategies fast.
- Max Drawdown
- Max drawdown (MDD) is the largest peak-to-trough equity loss a strategy suffered — the key risk metric in a backtest. Formula and how to read it.
- Monte Carlo Simulation
- Monte Carlo simulation reshuffles a strategy's trades thousands of times to show the range of outcomes one backtest hides, incl. realistic drawdowns.
- Overfitting
- Overfitting is tuning a strategy so closely to past data that it captures noise, not edge — great backtests, poor live results. How to detect it.
- Paper Trading
- Paper trading executes a strategy on live market data with virtual money instead of real capital. What it proves, what it misses, and when to use it.
- Sharpe Ratio
- The Sharpe ratio measures return earned per unit of volatility risk. Its formula, a worked NSE example, and how algo traders interpret the number.
- Walk-Forward Optimization
- Walk-forward optimization tunes a strategy on one window of data and tests it on the next, rolling forward through history to check robustness.
- Win Rate
- Win rate is the percentage of trades that end in profit. Why a high win rate can still lose money, and how it pairs with risk-reward ratio.
Indicators & Strategies
- EMA Crossover
- An EMA crossover signals a trend change when a faster exponential moving average crosses a slower one. The 9/21 setup with an NSE intraday example.
- ORB Strategy
- The ORB (opening range breakout) strategy trades a break of the day's first 15- or 30-minute high or low. Rules, a NIFTY example and key parameters.
- RSI
- RSI is a momentum oscillator scoring recent gains vs losses on a 0–100 scale, with 70/30 as overbought/oversold markers. Formula and honest usage.
- Supertrend
- Supertrend is an ATR-based trend-following indicator that plots a line below price in uptrends and above it in downtrends. Settings and signal logic.
- VWAP
- VWAP is the volume-weighted average price — the day's average trade price weighted by volume. Its formula and how intraday NSE strategies use it.
Options
- Delta Neutral
- Delta neutral means an options position whose net delta is near zero, so small moves in the underlying barely change its value. How neutrality is kept.
- Expiry Day
- Expiry day is the last trading day of a derivatives contract, when it settles and ceases to exist. Why NSE index expiry sessions behave differently.
- India VIX
- India VIX is NSE's volatility index, measuring the market's expectation of NIFTY volatility over the next 30 days from option prices. How to read it.
- Iron Condor
- An iron condor sells an OTM call spread and an OTM put spread together, earning premium in a range with strictly capped losses. NIFTY example inside.
- Lot Size
- Lot size is the fixed minimum quantity for one futures or options contract. Current NIFTY and BANKNIFTY lots and how lot size drives capital needs.
- Open Interest
- Open interest is the number of outstanding derivative contracts not yet closed or settled. How OI differs from volume and how traders read it on NSE.
- Straddle
- A straddle combines a call and a put at the same strike and expiry. Short straddle mechanics with a NIFTY example, payoffs and combined premium SL.
- Strangle
- A strangle pairs an OTM call with an OTM put on the same expiry. How short strangles differ from straddles, with a BANKNIFTY example and payoffs.
- Theta Decay
- Theta decay is the daily loss of an option's time value as expiry approaches. Why decay accelerates near expiry, with a NIFTY premium example.
Risk & Execution
- Position Sizing
- Position sizing is deciding how much capital or how many lots to risk on one trade. The fixed-percent method with a rupee example for NSE traders.
- Risk-Reward Ratio
- The risk-reward ratio compares what a trade risks (entry to stop) with what it targets (entry to target). How to compute it and pair it with win rate.
- Slippage
- Slippage is the gap between the expected price of a trade and the price it actually fills at. What causes it on NSE and how algo traders model it.
- Stop-Loss
- A stop-loss is an order that exits a position automatically once price moves against you by a set amount. SL vs SL-M orders on NSE, with an example.
- Target Order
- A target order is a limit order that books profit automatically at a predefined favourable price. How targets pair with stops in rule-based trading.
- Trailing Stop-Loss
- A trailing stop-loss follows price as a trade moves into profit, locking in gains while leaving room to run. How trailing rules work in algo systems.
Brokers & APIs
- Bracket Order
- A bracket order bundles entry, target and stop-loss into one order; a cover order pairs entry with a compulsory stop. How Indian brokers handle both.
- Kite Connect API
- Kite Connect is Zerodha's official API for placing orders, reading positions and streaming market data programmatically. API keys, tokens and limits.
Automation
- Chartink Scanner
- A Chartink scanner screens NSE stocks in near real time against technical conditions you define, and its alerts can drive automated trading systems.
- Pine Script
- Pine Script is TradingView's built-in language for coding custom indicators, strategies and alerts on charts. What it does well and where it stops.
- TradingView Webhook
- A TradingView webhook is an HTTP call that fires when a chart alert triggers, sending its message to a URL — the bridge from alerts to real orders.
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