Glossary

The words these docs and the builder use, in plain language, with links to where each one is explained in full. Use your browser's find (Ctrl+F or ⌘F) to jump to a term.

Investing basics#

  • Asset class: a kind of investment that tends to move as a group, such as US stocks, foreign stocks, government bonds, gold, or real estate.
  • ETF (exchange-traded fund): a fund that trades like a stock. Most tickers in Tactfolio strategies are ETFs, such as SPY, which holds the S&P 500.
  • Ticker: the short symbol a fund or stock trades under, such as SPY or IEF.
  • Treasury bills: short-term US government debt, the closest thing to cash that earns interest. Funds such as BIL hold them; strategies use BIL as their "cash" because plain cash earns nothing in a backtest.
  • Leveraged fund: a fund that aims for a multiple of an index's daily move, such as TQQQ at three times the Nasdaq-100. Over longer periods it drifts from that multiple, in either direction.
  • Inverse fund: a fund that aims to rise when an index falls, such as SH for the S&P 500. It's how a long-only strategy expresses a bearish view.
  • Long only: the strategy only ever owns things. It can't sell short or borrow money.
  • Tactical asset allocation: changing the mix of asset classes when conditions change, following rules, instead of holding one fixed mix.

Building strategies#

  • Strategy: a set of rules, drawn as a tree of blocks, that decides what to hold. See the builder guide.
  • Allocation: what the strategy holds and in what proportions, such as 60% SPY and 40% IEF.
  • Rebalance: trading back to the strategy's target allocation. The rebalance schedule (daily, weekly, monthly, quarterly, or yearly) sets how often the rules run.
  • Drift threshold: a rebalance rule that trades only when a holding has moved a set number of percentage points away from its target.
  • Lookback: how far back a reading looks, such as the last 200 trading days or the last 10 month-end closes.
  • Moving average: the average price over a lookback. A price above its moving average is the most common sign of an uptrend.
  • Momentum: the tendency of assets that have risen recently to keep rising for a while. Usually measured as the return over the last few months.
  • Absolute momentum: whether an asset beat cash (or zero) over its lookback. Relative momentum: whether it beat the other candidates.
  • RSI (relative strength index): a 0-to-100 reading of recent gains against recent losses. Below 30 usually means a sharp recent fall.
  • Canary: an asset watched as an early warning, whether or not the strategy holds it. See common patterns.
  • Inverse volatility: weighting holdings so calmer ones get more money, roughly equalizing the risk each contributes.
  • Minimum variance: the mix of holdings with the lowest combined volatility, given how they have moved together.
  • Sleeve: one part of a strategy with its own rules, such as a bond sleeve inside a larger strategy.
  • Revision: a saved state of your strategy. Every save adds one, and none ever changes afterwards.

Reading results#

  • Backtest: a replay of a strategy's rules over past prices. See what a backtest simulates.
  • Benchmark: what the strategy is compared with, usually what you would otherwise hold.
  • CAGR (compound annual growth rate): the steady yearly rate that would produce the same total growth.
  • Drawdown: how far the strategy is below its previous high. Max drawdown is the deepest one. See reading a backtest.
  • Volatility: how much returns swing, scaled to a year. Higher means a bumpier ride.
  • Sharpe ratio: return divided by volatility. Tactfolio shows it two ways: measured from zero, and over T-bills, after subtracting the Treasury bill return, which is the standard form other sites use.
  • Calmar ratio: CAGR divided by the size of the max drawdown.
  • Turnover: how much of the portfolio is traded per year. 2.0 means 200%.
  • Basis point (bp): one hundredth of a percent. 5 bps is 0.05%.
  • Slippage: the cost of trading, charged on every trade in a backtest.
  • Nominal and real: returns before and after inflation.
  • Simulated history: modelled prices from before a fund existed, used to test over longer periods. See simulated history.
  • Whipsaw: a rule selling after a dip and buying back higher, again and again, in a market that keeps changing direction.

Judging results honestly#

  • Overfitting: tuning rules until they fit the past's noise, which won't repeat. See why past results mislead.
  • In sample and out of sample: the dates a strategy was designed on, and dates it has never seen. Only out-of-sample results are a fair test.
  • Survivorship bias: testing only on what exists today, which leaves out the funds and companies that failed.
  • Tactfolio Score: how Discover is ordered, from 0 to 100: how a strategy is expected to compare with every other public strategy from here on, once what its backtest owes to hindsight is taken out. See how the score works.

Sharing#

  • Discover: the list of everyone's published strategies, at /strategies.
  • Handle: your public name on Tactfolio. It becomes permanent once you publish.
  • Version: a published revision, numbered v1, v2, and so on. Versions are permanent. See publishing and sharing.
  • Retire: take a published strategy out of Discover while keeping its page and versions working.
  • Pinned: fixed to one exact version, so later changes don't affect you.