Heisenberg Uncertainty Principle

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Definition of 'Heisenberg Uncertainty Principle'

In quantum mechanics, the Heisenberg uncertainty principle states by precise inequalities that certain pairs of physical properties, like position and momentum, cannot simultaneously be known to arbitrary precision. That is, the more precisely one property is known, the less precisely the other can be known.

When applied to trading this means that your action in the market had an impact on the outcome of the market for that day and your inaction would have also had an impact. So if you are back testing a trading strategy you make the (invalid) assumption that you could have bought or sold a stock or future at a given price and the market would have continued as it had done and you would have made a certain profit or loss. However, your action in the market could have influenced where the market traded to invalidating your back tested results.

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