Advanced Topics Flashcards
6 cards from real English Grammar Test practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Advanced Topics flashcards as text
What is the purpose of backtesting a trading strategy?
Answer: Testing a strategy against historical data to evaluate its potential performance before risking real money
Backtesting applies your strategy to historical market data to see how it would have performed, helping identify strengths, weaknesses, and realistic expectations.
What is a trailing stop order?
Answer: A stop-loss that automatically adjusts upward as the price rises, locking in profits while protecting against reversals
Trailing stops move with the price in a favorable direction but stay fixed when the price moves against you, automatically locking in gains.
What is algorithmic trading?
Answer: Using computer programs to automatically execute trades based on predefined rules and conditions
Algorithmic trading uses software to automatically identify opportunities and execute trades based on predefined criteria like price, volume, timing, or technical indicators.
What is a short squeeze?
Answer: A rapid price increase that occurs when short sellers are forced to buy back shares, driving the price even higher
When a heavily shorted asset's price rises, short sellers rush to buy back (cover) their positions to limit losses, which further drives up the price in a feedback loop.
What is paper trading?
Answer: Practicing trading with simulated money to test strategies without financial risk
Paper trading simulates real trading conditions with virtual money, allowing beginners to practice and experienced traders to test new strategies without risk.
What is the significance of pre-market and after-hours trading?
Answer: Trading that occurs outside regular market hours, often with lower volume, wider spreads, and higher volatility
Extended hours trading allows reactions to news and earnings before and after the regular session, but typically with less liquidity and wider bid-ask spreads.