Signals, indicators and backtests, explained
Caliente uses a lot of words that nobody is born knowing. This is what each of them means, a few hundred words at a time.
Start anywhere, or read straight through.
Markets and basics
The vocabulary the rest of the hub is written in.
- What a trading signal is, and how an alert differsA signal is one candle close where your rule became true. An alert is that reaching you. Why the two words differ, and what the message says.
- Long and short, and why Caliente is long onlyLong is positioned for a rise, short for a fall. What a short actually involves and what it costs to hold, and where Caliente stands today.
- How to read a candle, and why only closed ones countA candle is four prices: open, high, low and close. What each one means, why rules are checked on finished candles, and what a candle cannot record.
- Timeframes: what changes between 5m and 1dOne candle covers five minutes or a day. What changes when you switch, why your indicator settings mean something different on each, and what it costs.
- Crypto pairs, quote currencies and spot marketsBTC/USDC is the price of bitcoin in USDC. What the quote currency changes, what spot means, and the 30 pairs Caliente watches.
The indicators
What each one measures, and where each one misleads.
- SMA: the simple moving averageSMA(50) is the average of the last fifty closes. What it smooths, the three ways it is read, and where a crossover rule runs into trouble.
- EMA: the moving average that reacts fasterAn EMA weights recent closes more heavily than old ones. How it differs from an SMA, and why the first candles of a window look different.
- RSI: what “overbought” really meansRSI measures how one-sided the last 14 candles have been, from 0 to 100. Why overbought is a misleading name, with two real month-long examples.
- MACD: two averages and the gap between themMACD is the gap between two EMAs, smoothed. What the line, the signal line and the histogram each measure, shown across three candles.
- Bollinger Bands: measuring how stretched a move isA 20-candle average with two lines two deviations out. Why the bands widen and squeeze, and why a band touch is not a reversal.
Building a strategy
How a rule is put together, and what each choice does to how often it fires.
- Entry and exit: a strategy is a pair of rulesA strategy is one entry rule and one exit rule, up to five conditions each. What a condition is made of, and what happens when one fires.
- Match all or match any: how conditions combineMatch all needs every condition true at once. Match any needs one. What that does to how often a rule fires, and to your trade count.
- Crosses versus levels: the two ways a condition firesA cross is one candle; a level can hold for weeks. Why a level does not alert you every candle, and why a strategy does not re-enter at once.
- Stop-loss, take-profit, trailing stop and cooldownStop-loss, take-profit, trailing stop and cooldown: what each does, the order they resolve in, and why a backtested stop is an assumption.
Testing and alerts
Making sense of a backtest, and choosing where your alerts land.
- What a backtest is, and what it cannot tell youA backtest runs your strategy over candles that already happened. What makes ours honest, and a worked example of a result that does not hold up.
- Fees and slippage: why costs change the verdictA fee shaves the proceeds, slippage moves the fill. Both charged per side, why slippage is the one you estimate, and how costs scale with trading.
- Win rate, drawdown and the buy-and-hold gapTrade count first, then why total and average return disagree, what max drawdown actually measures, and the buy-and-hold comparison.
- Telegram or email: choosing where alerts landAlerts go to Telegram, email or both, and running both uses one alert rather than two. What each channel is good for, and what the bot cannot do.
- Why we never ask for your exchange API keysTrading bots need an API key to place orders as you. Why an alert tool needs none, what we do instead, and the trade-off that comes with it.
How Caliente works
Less about the market, more about the machinery.