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Slippage - Accounting for Bid/Ask spread

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Slippage - Accounting for Bid/Ask spread

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  #1 (permalink)
Posts: 27 since May 2019
Thanks: 11 given, 3 received

Hi guys im backtesting a system now on last traded price data, this means I can not be sure if the position entered/exited was at the bid or ask.

I am trading a small number of contracts on liquid futures and would expect to only be paying the spread in slippage - 1 tick.

Would it make sense to calculate 1/2 tick for backtesting. Accounting for around 50% of the time that the order would have been traded at the bid or ask (last traded price) and not suffered slippage.

Would be great to get some input.

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  #3 (permalink)
Golden Bay, New Zealand
Experience: Beginner
Platform: Sierra Chart
Trading: ES, NQ
Posts: 186 since May 2012
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Something else to consider is latency. I have 2-3 seconds from where my Sierra Chart spreadsheet sends off the order til when it is filled. So to bridge that gap I have the last price 2 seconds forward for the purposes of backtesting.

I also want to make the backtests as tough as possible, so for Market Order's I always assume I'm buying the sell price, with stop orders offset from that entry price. So in my backtest, I may "enter" at a price that was never traded. In my mind, I only incur slippage on the exit, as the entry price comes with the stop loss offset. I don't see a lot of slippage on the exit - i.e where I had a stop of 2.5 points, and end up with 2.75, and so I don't bother trying to account for that in backtests. In my Monte Carlo test, I can adjust the % of trades where exit slippage occurs, which tempers down the results to what might be expected in Live trading.

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November 27, 2019

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