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Portfolio123 » List all forums » Forum: Simulations and Portfolios » Thread: getting horrible real-life slippage |
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russell
Advanced Member
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When I rebalanced today and sold three stocks, I had over 4% slippage on two of the trades. In other words, the amount I actually sold them for was 4% lower than what P123 told me I could sell them for. Can anyone give me some advice on how to avoid slippage? I use scottrade. Is there a better broker I should use? I do use limit orders. The problem seems to be that the small-cap stocks I trade move a _lot_ from friday close to monday open. So the monday market price for my sales is lower than I want. When I put in my limit order, to get it filled, I still have to set my limit price close to what the actual price is. I usually execute my trades mid-morning. I could put in the sell orders before market opens on Sunday. Would that help? Slippage hurts a lot: I went back and reran my sims with 5% slippage, instead of .5%, which is what I had as my default. My average annualized return fell 100%! |
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marco
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The ports use the last available close price, which is last Friday. Slippage is not the difference betweene real-time price and the preivous day. It's just an adjustement to account for bid/ask spread and the impact of your trade. Today is a very bad day, which is why you see a big difference in the sells , but you should also see the same difference in the buys. Both differences added together should be close to 0. ---------------------------------------- Portfolio123 Staff |
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DennyHalwes
Advanced Member UNITED STATES Joined: Apr 28, 2004 Posts: 1532 Status: Offline |
Russell, Today is an unusual problem. All the markets gaped down on the open this morning. The Small and Micro Caps gaped down even more than the rest. If you didn't use a market order, you were chasing the stocks down all morning. You shouldn't use 5% slippage in your Sims. This means that the Sim will subtract 5% from each stock trade, both buys and sells, for a total of 10% for each round trip. I don't think anyone would ever follow any investment methodology that lost 10% off the top of every stock you bought! Even when I was trading Penny stocks the average real slippage was less than 1.5 %. 0.5 % is a good general value for the slippage if you are trading 50Mil to 2Bil market cap stocks. If you are trading only stocks less than about 300Mil than a slippage of 0.8 to 1.0 will be, on the average trade, conservative. Remember, if your Sims average 60% to 70% winners then on average buys will be higher and sells will be lower on Monday’s open. Slippage is a small price to pay for a system that consistently buys 60%to 70% winners and 30% + annual return. Denny  ---------------------------------------- "The significant problems we face cannot be solved at the same level of thinking that we were at when we created them". Albert Einstein |
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BJS
Advanced Member
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Russell, I'll give you today's example on how I sell my stocks. At the open I place a limit order that is 1% below Friday's close. This catches most stocks, and most sells are better than -1%. But if the stock doesn't get sold by 10:00 a.m. central time, then I set a second stop order at a price 1 cent lower than the low of the day so far. I had 2 sell orders today - RC and URGI. They both gapped down below -1%, so neither one got sold at the open. However, RC did come back in the morning to sell at my -1% limit order (barely). URGI did not come back that far, so at 10:00 I set a stop order at 14.91 (the low of the day so far was 14.92). It later tripped the stop and I sold at 14.90, or 2.68% below Friday's close. So between the two orders, I averaged selling at 1.84% below Friday's close. This is not real good, but nothing like the 4% you were talking about. And like I said, most of the time it comes out better than my -1% limit orders. Brian |
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tonysf
Advanced Member
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Russell, One issue I like to point out is that you should be looking at the slippage between your trade prices and today's open prices. If your portfolio has pretty high turnover and some elements of momentum factors, you probably want to run simulations under Next Open price rather than Pervious Close. Using Next Open price will likely lower simulation returns but you get a more realistic pciture using it with 0.5% to 1% slippage. I believe you are probably using Next Open price for simulations. |
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serpentine
Advanced Member
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I use 2% slippage based on Friday's close for my sims, to make sure that I am not being unrealistic. When I put this into a lot of the high flying public sims. most fall apart. My reasoning is based on the fact I am in Australia, so I just place limit orders and don't wnat to sit up all night watching if an order got filled and also because of days like Monday. In real life it is normally less, but there are times when something really tanks and I don't get set, so have to adjust the order and try again the next day. These can be painful. So, in general I have tried to make sims that have longer hold times, larger winners and large win%. My aim is to wait until the fundamentals are rewarded. The US market in the short term is nothing short of crazy - actually schizoprenic!! and definitely not rational. But the fundamentals do eventually win. Gary. ---------------------------------------- Plan_Trader |
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p123robert
Advanced Member CANADA Joined: Nov 7, 2005 Posts: 372 Status: Offline |
Hi, Russell, Some investors are unhappy with Scottrade's trade executions, but I cannot confirm that unhappiness, because, so far I haven't used Scottrade! However, when I view broker surveys, Scottrade's trade executions look pretty good! They're in the top one third of the pack! As to trade executions, The worst of the pack are FolioFn and Freetrade by Ameritrade, and the very best ones are OptionsXpress, Interactive Brokers (IAB), and Terra Nova Trading. However, OptionsExpress has high fees in commissions. IAB, on the other hand, provides a no service customer service. Of course, feel free to switch to a better broker, or stay with Scottrade! Scottrade's $7 commissions are great. Scottrade also provides excellent customer service. In the last 12 months I haven't used many limit orders in combination with using Portfolio123 ports, therefore I cannot say much on the subject of limit orders, but I'm about to do some experimenting, using real money, of course, and later on, I will let you know if they worked or not. Historically, August and September are very weak months in the stock market, and then rallies start in October into November and December. Then, historically, January is a very strong month, as investors buy back shares they sold off in December for tax reasons. However, this year, partly because 2006 is a mid-term election year in the U.S., the U.S. markets have followed some historic patterns, and ignored others. This year, August, September, October and November (and ESPECIALLY September and October) have been very good months that created many overbought stocks. From a TA standpoint, a correction has been due in November, and, guess what, the correction that has been overdue, occured today, Monday, 11/27/06. Today, Monday, the stock markets have been ruled by FEAR. Today, if you kept watching the market, chances are, you kept thinking, "Where is this market going? If it keeps going south like this, I'm gonna loose ALL of my stocks!" Chances are, today was especially hard on you and other P123 members, because we, P123 members, tend to invest in SMALL cap stocks that are even MORE volatile than other stocks! However, the good part is that, before every RALLY usually there's a correction, like today's correction. The good part is that corrections, like today's correction, are usually followed by a RALLY! Chances are good that another RALLY will start either tomorrow, or in the next few days! And that RALLY might carry us through the end of the year, AND January, too! I hope this helps. Robert ---------------------------------------- [Edit 1 times, last edit by p123robert at Nov 28, 2006 4:55:11 AM] |
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p123robert
Advanced Member CANADA Joined: Nov 7, 2005 Posts: 372 Status: Offline |
Hi, Brian, Russell, Marco, Denny, Tony, and All, Thank you, Brian, for a great explanation on selling stocks with limit orders! Your (-1.84%) average from Friday's close is good! Today, my sell average from Friday's close was (-1.88%). Based on my informal testing, there's a 0.414% improvement, when you buy stocks, using limit orders (vs. market orders on the open)! However, how do you find the TIME to follow up on your limit orders? Limit orders are not easy for me, because, if I use limit orders, I have to wear two or more hats during the day, and one of my hats has to be that of a day trader. Then, just like day traders, I have to have the ability to repeatedly go back to my computer, during the day. But when you're working, how much FREE TIME do you have? Unless you've got a safe, union protected job - and I don't - or, unless you're an independent researcher who is paid to surf the Net all day - and I'm not - or, unless you're living and working in Europe - and I don't - or, unless you're living in Asia or Australia - and I don't - how can you afford the luxury of being able to view and work on your portfolio at exactly 11:00 a.m. Eastern, or at exactly 3:30 p.m. Eastern? Robert ---------------------------------------- [Edit 1 times, last edit by p123robert at Nov 28, 2006 4:17:00 AM] |
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p123robert
Advanced Member CANADA Joined: Nov 7, 2005 Posts: 372 Status: Offline |
Hi, Marco, You made five excellent points here, and my experience does correlate with yours... 1) Here, at P123, our ports use not Monday's open, but the last available closing price, which is Friday's closing price. 2) In spite of earlier threads with explanations at, for example, http://portfolio123.com/mvnforum/viewthread?thread=2047#8258 , here in this community, there seems to be still a lot of confusion about our definition of slippage. As Marco said, by definition, slippage is not the difference between the real-time price and Friday's closing price. Slippage is just an adjustment to account for Monday's liquidity issues and to account for the imperfections as to how brokers and exchanges execute your trades on Monday. 3) Today was a very bad day, which is why Russell (and others) saw big differences in their sells. However, ... 4) You should also see the same difference in the buys. 5) When both differences are added together, they should be close to zero. And, on the long run, and in my experience, they are close to zero. Robert |
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BJS
Advanced Member
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Robert, With my method, all you need to do is check your trades twice - once at 10:00 a.m., and again at around 2:30 p.m. Yes, if you can't do that, then it will not work for you. Brian |
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getting horrible real-life slippage
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