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Expected slippage vs order size
Started:September 28th, 2010 (05:05 PM) by fluxsmith Views / Replies:4,385 / 21
Last Reply:March 23rd, 2011 (03:03 PM) Attachments:2

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Expected slippage vs order size

Old December 18th, 2010, 02:36 PM   #21 (permalink)
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Back to the original question, it's a good one that should be considered by those who backtest. (I don't, not of use to me) Introducing more realistic slippage into system testing and optimization will produce more realistic results - but those results will more than likely be unsatisfactory from a profitability viewpoint.

How do you introduce realistic slippage into a backtest?

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Old March 23rd, 2011, 03:03 PM   #22 (permalink)
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This is an older thread, but I was researching slippage and I thought I would add something.

Technically, both Fat Tails and Zoethicus were correct.

Momentum slippage occurs due to lag and fast moving markets. If you're stop is on the far side of the market (i.e. you have a profit stop limit order for a long position ABOVE the market price and you're waiting for sufficient momentum/upmovement to fill you, sometimes you get lucky and you get "filled UP.")

This phenomenon is altered by differing entry exit styles. If you place buy limit orders for entry below current market, then you always face a positive momentum slip.

However, if you're strategy involves placing entry orders "ahead" of trending conditions, then momentum slippage (for a limit order) can be detrimental.

Furthermore, if you incorporate a bottom side only exit strategy for money management (i.e. no bracket, just a trailing stop) then even with a limit order, you run the risk of momentum slippage.

I have seen, (using 1 contract) crazy conditions and up to 6 ticks of momentum slippage personally. Given my particular entry and exit strategy/style...I've since given up on limit orders and all the headaches they present for automation in favor of market orders....at least with market orders I can somewhat manage the spread slippage and I don't have the headaches/heartaches with partial fills, automation bugs/challenges, etc.

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