Reference
Trading Glossary
50 essential terms for prop firm trading, automation, and algorithmic strategies — explained in plain English.
Prop Firm (Proprietary Trading Firm)
A company that provides capital to traders in exchange for a percentage of the profits. Traders must typically pass an 'evaluation' or 'challenge' to prove their skills before receiving a funded account.
Complete prop firm guide for futures traders →Evaluation (Challenge)
A simulated trading test required by prop firms. Traders must hit a specific profit target without violating risk rules (like maximum drawdown) to qualify for a funded account.
Passing Apex evaluations with bots →Drawdown
The peak-to-trough decline during a specific period for an investment, trading account, or fund. In prop firms, hitting the 'Max Trailing Drawdown' usually results in a failed evaluation.
Mean Reversion
A financial theory suggesting that asset prices and historical returns eventually return to the long-term mean or average level of the entire dataset. The YMI 'Marty Bot' utilizes this strategy.
See the Marty Bot mean reversion strategy →KPL (Key Price Level)
A proprietary price zone calculated by Young Money Investments using institutional volume and volatility data. These levels act as high-probability areas for support, resistance, or breakout entries.
How KPL trading works →NinjaTrader 8
A popular trading platform for futures traders, known for its advanced charting, market analysis, and automated strategy capabilities (C# based). YMI bots are built natively for NinjaTrader 8.
NinjaTrader 8 beginners guide →ATM Strategy (Automated Trade Management)
A feature in NinjaTrader that automatically manages open positions. It can place Stop Loss and Profit Target orders instantly when a trade is entered, reducing manual error.
Rithmic
A high-performance data feed and order routing system used by many futures prop firms (like Apex and Topstep) to connect traders to the CME exchange with low latency.
VWAP (Volume Weighted Average Price)
A trading benchmark used by traders that gives the average price a security has traded at throughout the day, based on both volume and price. It is important because it provides traders with insight into both the trend and value of a security.
Futures Contract
A legal agreement to buy or sell a standardized asset at a predetermined price at a specified time in the future. Futures are leveraged instruments traded on regulated exchanges like the CME Group. Common futures markets include ES (S&P 500), NQ (Nasdaq), CL (Crude Oil), and GC (Gold).
How YMI trades futures →Micro Futures
Smaller-sized futures contracts (1/10th the size of a standard contract) that allow traders to participate in major futures markets with less capital. Popular micro contracts include MES (Micro E-mini S&P 500) and MNQ (Micro E-mini Nasdaq). Ideal for beginners and prop firm challenge accounts.
Start trading micro futures with YMI →Max Trailing Drawdown
A risk rule used by most prop firms. The maximum drawdown limit follows the account's highest equity balance — if you make money, the limit 'trails up,' but never comes back down. Violating this limit causes an automatic account failure.
Managing drawdown in prop firm evaluations →Funded Account
A trading account provided by a prop firm to a trader who has passed an evaluation challenge. The trader trades the firm's capital and keeps a percentage of the profits (typically 80-90%), while the firm covers losses up to the drawdown limit.
Pro Trader: prop firm-ready bot templates →Opening Price (OP) Strategy
A YMI proprietary strategy that uses the session opening price as a key reference point. Volatility models predict how far price is likely to extend from the open, providing high-probability long and short zones based on statistical deviation.
Opening Price Strategy deep-dive →Position Sizing
The process of determining how many contracts to trade based on account size and risk tolerance. Proper position sizing ensures that no single trade can significantly damage your account. The standard rule is to risk no more than 1-2% of account equity per trade.
Position sizing guide for futures traders →Backtesting
The process of testing a trading strategy on historical market data to evaluate its performance before risking real capital. A properly backtested strategy should account for transaction costs, slippage, and out-of-sample validation periods to avoid overfitting.
How to backtest strategies in NinjaTrader →Algorithm / Automated Strategy
A set of rules programmed into trading software that automatically generates and executes trade signals without manual intervention. Automated strategies remove emotional decision-making and can monitor markets 24/7. YMI's Marty Bot and KPL Bot are NinjaTrader 8 automated strategies.
How YMI's automated trading systems work →ES (E-mini S&P 500)
The most actively traded futures contract in the world, representing 1/5th the value of the standard S&P 500 futures contract. Each tick (0.25 points) is worth $12.50. ES is the flagship market for YMI trading systems due to its liquidity and tight spreads.
How YMI trades ES futures →NQ (E-mini Nasdaq 100)
Futures contract tracking the Nasdaq 100 index. Each tick (0.25 points) is worth $5.00. NQ is more volatile than ES, offering larger point moves but requiring tighter risk management. YMI generates daily KPL levels for both ES and NQ.
YMI strategies for NQ →Tick / Tick Size / Tick Value
The minimum price increment a futures contract can move. For ES, the tick size is 0.25 points and each tick is worth $12.50 per contract. Tick value varies by instrument — NQ ticks are $5.00, RTY ticks are $5.00, CL ticks are $10.00.
Stop Loss
An order placed to automatically exit a trade if price moves against the position by a defined amount. Stop losses are essential for limiting risk on every trade. Proper stop placement is a key skill in systematic trading — stops should be beyond meaningful structure, not arbitrary dollar amounts.
Risk management and stop loss placement →Profit Target
A predetermined price level at which a trade is automatically closed for a gain. Setting profit targets in advance removes emotional decision-making and ensures trades are closed according to the original risk/reward plan.
Risk/Reward Ratio
The ratio of potential profit to potential loss on a trade. A 2:1 ratio means you risk $100 to potentially make $200. The YMI KPL strategy targets a 2.1:1 average risk/reward. Even a strategy with a 50% win rate can be profitable with a strong risk/reward ratio.
KPL strategy: 73% win rate, 2.1:1 R/R →Win Rate
The percentage of trades that result in a profit. Win rate alone does not determine profitability — a 40% win rate strategy can be highly profitable with a 3:1 risk/reward ratio. YMI's KPL strategy achieves approximately 73% win rate over 500+ backtested trades.
Profit Factor
Total gross profit divided by total gross loss. A profit factor above 1.5 is considered good; above 2.0 is excellent. It measures the overall efficiency of a strategy — how much you earn for every dollar lost. Used alongside win rate and drawdown to evaluate strategy quality.
Slippage
The difference between the expected fill price and the actual fill price of an order. Slippage occurs during fast-moving markets or when trading illiquid instruments. Realistic backtesting always includes slippage assumptions — ignoring it can make losing strategies appear profitable.
Backtesting with realistic costs →VPS (Virtual Private Server)
A remote Windows server that runs 24/7, allowing traders to keep their NinjaTrader bots running even when their personal computer is off. For prop firm trading, a Chicago-based VPS (near the CME exchange) minimizes latency and prevents missed trades due to internet outages.
How to set up a trading VPS →Market Regime
The current behavioral state of the market, typically classified as 'trending' or 'ranging/mean-reverting.' Different strategies work best in different regimes — momentum strategies thrive in trends, while mean reversion strategies like YMI's Marty Bot excel in choppy, range-bound markets.
Trading different market regimes →Scalping
A trading style focused on making many small, quick profits from minor price movements, usually holding positions for seconds to a few minutes. Scalping requires tight spreads, fast execution, and discipline. YMI's KPL Bot often employs scalping tactics when targeting quick moves from key levels.
CME Group
The world's largest derivatives marketplace, operating exchanges including the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT), and NYMEX. Nearly all major futures contracts — ES, NQ, CL, GC, and more — are traded on CME Group exchanges.
Leverage
The ability to control a large notional position with a small amount of capital. Futures are inherently leveraged — one ES contract controls ~$250,000 in S&P 500 exposure with roughly $1,000-$2,000 in margin. Leverage amplifies both gains and losses, making risk management critical.
Margin
The minimum capital required to hold a futures position. 'Initial margin' is required to open a trade; 'maintenance margin' is the minimum to keep it open. Intraday margin (charged by brokers during market hours) is typically much lower than overnight margin.
Daily Stop Loss (DSL)
A self-imposed maximum loss limit per trading day. Once the DSL is hit, trading stops for the day. This is critical for prop firm compliance and long-term account preservation. YMI recommends setting DSLs at 2-3x the average expected daily loss of the strategy.
Risk management: daily stop loss rules →Out-of-Sample Testing
Validating a trading strategy on data it was never optimized on. The gold standard is to optimize on historical data (in-sample) and then test the final parameters on a completely separate time period (out-of-sample). If performance degrades dramatically out-of-sample, the strategy is likely overfit.
Proper backtesting methodology →Compounding
Reinvesting profits to increase position size over time, accelerating account growth. In futures, compounding typically means adding contracts as the account grows. YMI's scaling framework starts at 1 micro contract and systematically increases size as profit buffers are established.
How to compound a trading account →Alpha
The excess return of a trading strategy above a benchmark (like simply holding the S&P 500). True alpha means your strategy generates returns that cannot be explained by general market exposure. Most retail traders generate negative alpha after costs — systematic, backtested strategies aim to capture genuine edge.
Consistency Rule
A requirement at many prop firms that no single trading day can account for more than a set percentage (typically 30-50%) of total profits. This prevents traders from getting funded by a single lucky day. YMI's prop firm strategies are designed to generate steady daily gains rather than single large spikes.
Passing prop firm evaluations →Pairs Trading
A market-neutral strategy that simultaneously goes long one correlated instrument and short another when they diverge beyond their historical relationship. Profit comes from the spread between the two instruments converging back to its statistical mean — not from the direction of either instrument individually. The YMI Pairs Trading strategy applies this concept to ES and NQ futures using machine learning correlation analysis.
YMI Pairs Trading strategy: ES/NQ ML correlation analysis →MACD (Moving Average Convergence Divergence)
A momentum indicator that shows the relationship between two exponential moving averages (typically 12-period and 26-period). The MACD line minus the signal line creates a histogram that visualizes momentum acceleration or deceleration. MACD bullish divergence — where price makes lower lows but MACD makes higher lows — is a key signal in the YMI Long-Term Investment Strategy, indicating selling momentum is exhausting before a potential recovery.
YMI Long-Term Strategy: MACD + discount analysis →Cointegration
A statistical property where two time series, each following a random walk individually, maintain a stable long-run relationship such that their spread is mean-reverting. Unlike simple correlation (which measures same-direction movement), cointegration means the spread between two instruments has a mathematical anchor that pulls divergences back to equilibrium. ES and NQ futures are cointegrated, which is the statistical foundation for the YMI Pairs Trading strategy.
Cointegration in pairs trading: ES vs NQ →Z-Score
A statistical measure of how many standard deviations a value is from the mean of a dataset. In trading, z-scores are used to identify statistically extreme price levels or spread values. The YMI Pairs Trading strategy enters when the ES/NQ spread z-score exceeds ±2.0 standard deviations from its rolling mean, and exits when it returns within ±0.5 — a systematic way to quantify 'extreme' without arbitrary thresholds.
Futures Contract
A legally binding agreement to buy or sell a specific asset at a predetermined price on a specified future date. Unlike buying stocks directly, futures contracts provide leveraged exposure to an asset (stock index, commodity, currency, or bond) with built-in leverage through margin requirements set by the exchange. The most commonly traded futures contracts by retail traders are ES (E-mini S&P 500), NQ (E-mini Nasdaq-100), RTY (E-mini Russell 2000), CL (Crude Oil), and GC (Gold).
Complete beginner's guide to futures trading →Margin
The minimum capital required to hold a futures position. Unlike stock margin (which is borrowed money), futures margin is a good-faith deposit that demonstrates your ability to absorb adverse price moves. Exchange-set initial margin for 1 ES contract is approximately $13,000; intraday margin at most brokers is reduced to $500–$1,500. Margin calls occur when your account equity falls below the maintenance margin level, requiring you to deposit additional funds or close positions immediately.
Tick
The minimum price increment a futures contract can move. For ES, one tick equals 0.25 index points = $12.50 per contract. For NQ, one tick equals 0.25 points = $5.00 per contract. Understanding tick value is essential for position sizing — a 10-tick stop on ES costs $125 per contract, while the same 10-tick stop on NQ costs only $50. YMI strategies express stops in ticks to make risk calculation consistent across market conditions.
RTY (E-mini Russell 2000)
The CME Group E-mini Russell 2000 futures contract tracking 2,000 U.S. small-capitalization stocks. Contract value: $50 × Russell 2000 Index. One full point = $50; minimum tick = 0.10 points = $5. Micro version (M2K) is 1/10th the size ($5 per point). RTY is the most volatile of the four major U.S. equity index futures and is used as a leading economic indicator — RTY tends to lead ES by 4–8 weeks at economic cycle turning points.
RTY futures trading guide: systematic Russell 2000 trading →CL (Crude Oil Futures)
The NYMEX Light Sweet Crude Oil futures contract, one of the world's most actively traded commodity futures. One CL contract = 1,000 barrels of crude oil. A $1/barrel price move = $1,000 per contract. Minimum tick = $0.01 = $10. Micro version (MCL) is 1/10th the size ($100 per $1 move). CL is highly sensitive to EIA weekly inventory reports (Wednesdays, 10:30 AM ET), OPEC+ decisions, geopolitical events, and USD strength.
CL crude oil futures complete trading guide →GC (Gold Futures)
The COMEX Gold futures contract. One GC contract = 100 troy ounces of gold. A $1/oz move = $100 per contract. Minimum tick = $0.10/oz = $10. Micro version (MGC) is 1/10th the size ($10 per $1/oz move). Gold's primary price driver is real interest rates (nominal Treasury yield minus inflation expectations). GC's negative correlation to equities during risk-off events makes it a portfolio diversifier alongside ES and NQ.
GC gold futures complete trading guide →Micro Futures
1/10th-size versions of standard futures contracts designed to make futures accessible with smaller account sizes. Examples: MES (Micro E-mini S&P 500, $1.25 per tick), MNQ (Micro E-mini Nasdaq-100, $0.50 per tick), M2K (Micro E-mini Russell 2000, $0.50 per tick), MCL (Micro Crude Oil, $1 per tick), MGC (Micro Gold, $1 per tick). Micro contracts allow genuine live market practice with real money and real execution at minimal financial risk. YMI recommends starting with MES or MNQ before trading full-size contracts.
Complete beginner's guide to futures including micro contracts →Real Interest Rate
The nominal interest rate (e.g., 10-year Treasury yield) minus expected inflation (measured by the 10-year breakeven inflation rate or TIPS yield). Real rates matter because they represent the actual purchasing-power-adjusted return on safe assets. When real rates are negative or falling, gold and risk assets tend to rally. When real rates rise, gold faces headwinds and high-duration assets like tech stocks (NQ) underperform. Real rates are tracked via the 10-year TIPS yield on FRED or TradingView.
How real interest rates drive gold futures prices →Contract Roll
The process of closing an expiring futures contract and opening the equivalent position in the next active contract month before expiration. Futures contracts expire monthly or quarterly — if you hold a position through expiration without rolling, you face potential physical delivery obligations. Roll dates are typically 3–5 trading days before expiration when volume migrates from the expiring 'front month' to the next contract. Roll cost can be positive (backwardation, where farther-out contracts are cheaper) or negative (contango, where they're more expensive).
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