1. Why is running multiple strategies in a portfolio only truly diversifying if their correlation is low?
Low correlation guarantees higher total profit If strategies are highly correlated, they tend to lose money at the same time, so combining them does not reduce drawdown Correlation only matters for currency pairs, not other instruments High correlation always means both strategies are profitable
2. What is 'correlation breakdown' in a multi-strategy portfolio?
When a strategy stops generating any signals When two strategies that appeared uncorrelated in calm markets suddenly move together during a crisis When a broker changes its correlation calculation method A term for when a strategy's win rate falls to zero
3. What distinguishes a direct hedge from a cross-asset hedge?
A direct hedge uses options while a cross-asset hedge never does A direct hedge offsets a position with the exact same instrument, while a cross-asset hedge uses a related but different instrument There is no meaningful difference between the two A cross-asset hedge is always cheaper than a direct hedge
4. What is 'basis risk' in the context of cross-asset hedging?
The risk that a broker changes trading hours The risk that the hedge and the original position drift apart because the correlation between them weakens The risk of paying too much commission The risk that occurs only with direct hedges, not cross-asset ones
5. Why is hedging described as never free, even when it successfully limits a loss?
Hedges always require a licensed broker-dealer Hedges carry costs such as swap, financing, or option premiums, which are paid whether or not the bad outcome occurs Hedging is only available to institutional traders Hedges always double the position size
6. What does Monte Carlo analysis do to a strategy's historical trade results?
It deletes losing trades to improve the equity curve It randomly reshuffles the order of trades thousands of times to generate a distribution of possible equity curves It predicts entirely new trades the strategy has never made It converts the strategy into a walk-forward test automatically
7. What is a key limitation of Monte Carlo analysis on trading strategies?
It requires live trading data and cannot use historical trades It can only be applied to forex strategies It is still built entirely from the historical trades it starts with and cannot invent genuinely new market outcomes It always produces a single equity curve, just like a normal backtest
8. How does walk-forward analysis differ from a simple single backtest train/test split?
It uses only out-of-sample data and never optimizes parameters at all It repeatedly optimizes on a window of data, tests on the next unseen window, and rolls forward through the entire history It is identical to a simple split but performed twice It removes the need for any out-of-sample testing
9. Why is walk-forward analysis considered a stronger validation method than a single backtest?
It always produces higher returns than a simple backtest It reflects parameters only ever exposed to data available before each test point, giving a more realistic picture of adapting to changing market conditions It eliminates the need for any historical data It guarantees the strategy will never experience a drawdown
10. What does the Sortino ratio improve upon compared to the Sharpe ratio?
It measures only average profit per trade It only penalizes downside volatility rather than penalizing all volatility including upside swings It removes the need to track drawdown at all It measures win rate instead of volatility
11. What does the Calmar ratio specifically compare?
Win rate to profit factor Annual return to maximum drawdown Number of trades to account size Gross wins to gross losses
12. Why is maximum drawdown often considered one of the most important metrics for a trader personally, beyond just a statistical measure?
It is the only metric regulators require traders to report It largely determines whether a trader can psychologically and financially survive a strategy's worst stretch It always predicts future profit factor exactly It has no relationship to risk of ruin
13. Why do professional traders track a dashboard of several performance metrics together rather than relying on just one?
Regulators require a minimum of eight metrics for any trading business Each metric exposes a different weakness, and relying on only one favorite number creates blind spots A single metric is illegal to report to investors More metrics always mean a strategy is more profitable
14. What is expectancy, as a trading performance metric?
The total number of trades placed in a year The average amount won or lost per trade The largest single winning trade in a strategy's history The percentage of trades that were profitable
15. According to the lesson on taxes and legal basics, why is the guidance intentionally general rather than jurisdiction-specific?
Because tax rules are identical everywhere so specifics do not matter Because tax and legal rules differ significantly by country and individual circumstances, and change over time, so a licensed professional should be consulted for specifics Because trading profits are never taxable anywhere Because only institutional traders are subject to tax law
16. Why does good recordkeeping matter for a trader running trading as a business?
It has no effect on tax filing, only on strategy performance It makes tax filing easier and is often required to support certain classifications or deductions It is only useful for Monte Carlo analysis It replaces the need for a broker statement entirely
17. What is the key mindset shift the lesson emphasizes when a trader considers managing outside investor capital?
It is simply trading the same way with a bigger account and no new obligations It is a step up in responsibility and complexity involving regulation, reporting, and structural obligations, not just more capital to trade It requires no reporting as long as returns are positive It is legally identical to trading only personal funds in every jurisdiction
18. What ongoing obligation does managing outside capital typically create that personal trading does not?
A requirement to only trade one instrument at a time Regular, transparent reporting to investors on performance, risk, and fees A ban on using any risk management techniques Automatic conversion of the account into a MAM structure