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:

  1. Read in OHLC data for 40 contracts available at Trading Blox.
  2. Use 20 / 5 day price channel for entry / exit.
  3. When an entry is triggered increment a market-trade counter (MTC) and record the Trigger Price.
  4. 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).

  5. Calculate LTC as percent of MTC
  6. 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%.

Note:

  • 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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