Hi guys,

I have created my first automated strategy and I am wondering what I should expect from it going live, judging from the results in market replay testing with NinjaTrader.

It uses limit orders on the ES. The thing is, it is profitable when I use liberal fills (filled when limit orders touched). It loses just as much when using conservative fills (filled when price penetrates the limit price).

Let's say it loses 5K on average per week when using conservative fills, and it profits 5K when using liberal fills. The point is it seems to have a total inverse result when using these different fill settings.

The problem is with conservative fills, it touches the limit order and then reverses, leaving me unfilled and causes me to miss a trade.

The question is, what can I expect from it going live? Even if I am filled on half of the touched limit orders, I should break even.

The limit orders are typically placed about 5 mins before it is touched. But ranges from 1min to 15min.

Thanks!

in my experience using the limit fill if touched is a recipe for disaster. Especially with something as thick as ES your going to get filled probably less than 50% of the time. Also you will always be filled on losers but not on winners. One way to really test the system is to convert the limit orders to market and see if it is still profitable. If the system must you limit orders, i always use 1 tick penetration to fill. Otherwise i feel that your just tricking the platform into giving you results that you will never see real time.

I don't understand what you man by a thick order book? Do you mean, there are a lot of limit orders at each price level? If so, does it really matter how thick the order book is? If I am ahead of 50% of orders at my limit price, doesn't that mean that I will get filled on average 50% of the time when touched?

As far as I understand, in order for the bid/ask to trade through a price level, means that the buy/sell limit orders need to be exhausted/filled at that level. So it is only when all the limit orders at my limit price are filled that price will penetrate that level. If I am ahead of 50% of orders at the limit price, then I am likely to be filled before price penetrates, 50% of the time on average?

Thanks.

Yes i mean lots of pending orders sitting on the bid/ask levels is what i am referring to a thick book.

It is critical your position in queue for getting your limit filled. Just because your in front of 50% of the orders doesn't meant you will be filled 50% of the time. That's a bad assumption. What if when price comes to your level only 1 contract trades and goes away? That is in fact trading at your level but could only be less than 1% of the orders on the level were filled. There is no guarantee other than price trading through your level to be sure that you were filled on a limit order or going to market. The probability of determining the fill % would be to record how much gets filled at levels that dont get traded through on the order book and calculating how many orders were traded vs how many were shown when it became the inside bid/ask. This would be a tremendous amount of data to analyses and would be in the realm of HFT.

Also your saying that your placing an order 1-5 minutes before you want to trigger, so price probably already very close to your level. In which case I doubt your in the top 50% of the ES queue, this again deals with thick markets.

Personally if it was my system, if the results were failures at 1 tick pass through vs limit to touch I would be highly skeptical. Only because I have made the same assumptions before. The market micro structure and order dynamics at any price level especially one that is as heavily traded as ES is going to be fairly complicated matter to determine the actual % of fill without passing through. When it can be easily bypassed with 1 tick pass through and be 100% certain that it would have executed properly.

The same strategy actually works better than the ES on the 6E using liberal fills (filling limit when touched), but is worse than the ES when using conservative fills (filling limit on penetration). Would I be better off trying this strategy on the 6E as it has a thinner book and more likely to fill the limit on touch?

Am I likely to be filled on touch if I place the limit order on average 5 mins before price touches my limit on the 6E?

Thanks.

I would guess it would be easier but again you would need to go through that process explained above to determine for any instrument. I am getting the feeling that the degradation of strategy due to limit fill on touch vs pass through is whats really holding you to wanting to use at touch vs market or pass through. I have created systems for ES and 6E some of which are documented in my automated trading journal and all use pass through by 1 tick. IMHO there is never a justification to ever use limit on touch, its just not realistic in any market place.

The strategy still works with larger profit targets. With a 25 tick profit target on the 6E, how likely do you think the limit might fill on touch if not penetrated?

I could also try using a chase if touched. For example, if the limit is touched then price reverses x number of ticks without my limit being filled, I could initiate the limit to chase. Or maybe just enter market? What do you think?

Thanks.

I cant say how likely any order is to be filled at touch, this is something that heavy order book research and data mining would be able to uncover I just dont have that tool set.

"chasing" may be your best bet, like turning your limit to a market if your not filled within say 10 seconds. I dont know if i would like to initiate after retracement back down and up again it may be a totally difference scenario. Only testing on your specific system will tell you if its working or not.