The vocabulary of systematic trading.

Block bootstrap

Resampling contiguous blocks of returns to preserve autocorrelation and volatility clustering.

CUSUM (cumulative sum control)

A sequential change-point detector: the earliest statistically disciplined alarm that a process has drifted.

Deflated Sharpe ratio (DSR)

A Sharpe ratio corrected for the number of trials it took to find it — the antidote to strategy mining.

Expected shortfall (CVaR)

The average loss on the days beyond VaR — the size of the tail, not just its doorway.

Kelly criterion

The bet size that maximizes long-run growth — and why practitioners trade a fraction of it.

Maximum drawdown

The deepest peak-to-trough decline of the equity curve — the number that actually removes traders from the game.

Monte Carlo simulation

Generating thousands of alternative histories from your returns to read the distribution, not the anecdote.

Probabilistic Sharpe ratio (PSR)

The probability that a measured Sharpe ratio is genuinely above a benchmark, given sample length, skew and kurtosis.

Probability of backtest overfitting (PBO)

The probability that the configuration chosen in-sample underperforms the median out-of-sample.

Probability of ruin

The chance that an equity path touches a loss threshold you cannot or will not survive.

Sharpe ratio

Excess return per unit of volatility — the most quoted and most abused performance metric.

Value at Risk (VaR)

The loss threshold that a day should only breach with a given small probability.