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Insights, strategies, and guides to help you trade smarter.
Directional dependence tests are quantitative techniques used to evaluate if the direction of one variable holds any information about the future direction of another variable. Directional relationships can provide insights into whether a given directional pattern is persistent, random, or could be of use in developing a trading strategy.
While more than one trading position is open simultaneously, analyzing each position separately might be misleading. The concept of portfolio correlation allows traders to measure the extent to which different securities or trading strategies interact. Two positions could be diverse in terms of the securities being used, but deliver the same performance under changing market conditions.
Trading strategy benchmarks are reference points used to evaluate how effectively a trading strategy performs relative to a relevant market, index, alternative strategy, or predefined target. Instead of looking at profits alone, traders can compare returns, consistency, volatility, costs, and downside risk. A useful benchmark should match the strategy's market, timeframe, objectives, and risk profile. This makes it easier to determine whether performance reflects genuine strategy value or simply favorable market conditions. In this blog, you’ll learn how to choose relevant trading strategy benchmarks, measure performance, and compare returns with risk, consistency, and drawdown.
A trading strategy may work for months and even years, but gradually become ineffective. This phenomenon is referred to as strategy edge decay. This does not imply that the initial trading strategy was poorly chosen. The trading environment may change, the trader himself may change, and thus the environment may stop providing any opportunity for the trader to have any advantage.
Trading psychology is the psychological aspect of trading. It determines the way traders interpret the information, react to profits and losses, deal with uncertainties, and make decisions under financial pressure. However, a trading strategy provides the conditions for taking and managing a trade.
A TradingView indicator may look highly accurate on historical charts, but its signals can sometimes change after new market data appears. If you want to know how to check if a TradingView indicator repaints, you need to test how its signals behave in real-time rather than relying only on past performance. Repainting can cause buy and sell signals to disappear, move to different candles, or appear more accurate than they were when the market was live.