Jez Liberty made two recent posts on the issue of slippage:
Check out the comment sections, too.
I was curious about using stop-limit entry orders as a strategy to limit slippage. This is only feasible when you know your trigger price in advance. The trade-off is that some orders will not trade, but those that do have no slippage of the “execution risk” variety.
I completed the following analysis:
- Read in OHLC data for 40 contracts available at Trading Blox.
- Use 20 / 5 day price channel for entry / exit.
- When an entry is triggered increment a market-trade counter (MTC) and record the Trigger Price.
- If the limit entry order would have executed:
- Price returns to the Trigger Price
- Exit price has yet to move past Trigger price
- Any day after the trigger day
- Before exit is triggered
increment a limit-trade counter (LTC).
- Calculate LTC as percent of MTC
- Calculate mean and standard deviation over all 40 contracts.
84.1% +/- 3.8% of all longs and 84.7% +/- 4.3% of all shorts would enter on the limit order. So, 84% +/- 4%.
- Percentage is understated – the Trigger day is excluded.
- This only reduces slippage on entry.
- No analysis is made of the relative profitability of missed trades.
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