Finessing MOO orders
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- Roundtable Knight
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Finessing MOO orders
Does anyone attempt to get a better price than the open by monitoring market action and waiting for a dip, etc? Do you think it helps your slippage in the long run?
I know people who do this and, yes, they feel it reduces their average slippage over the long term.
But the histogram (distribution) of slippage_reduction has got some very nasty outlier trades,
where waiting to execute turned out to have been exactly the worst thing to do. Wait for a dip
before buying, only to watch the price march steadily upwards. Wait for a rally to sell, however
the price drops linearly. It could happen, it does happen. So it might be prudent to have a plan
(or even a rule), what to do when things go bad while you are waiting.
But the histogram (distribution) of slippage_reduction has got some very nasty outlier trades,
where waiting to execute turned out to have been exactly the worst thing to do. Wait for a dip
before buying, only to watch the price march steadily upwards. Wait for a rally to sell, however
the price drops linearly. It could happen, it does happen. So it might be prudent to have a plan
(or even a rule), what to do when things go bad while you are waiting.
If you split your order in half, executed half at market on open, and executed the other half using some kind of slippage_reduction finesse, then
Another way to buy lower than the open is to follow the intraday trend and use an intraday trailing stop: Buy at (the lowest tick of the day so far) plus (V ticks), where V is some measure of intraday volatility. Perhaps, V= the average height of yesterday's 30 minute bars. Follow the trend down and when it finally reverses by V ticks or more, buy.
A third way is to use both a limit order and a stop order (one cancels the other).
You might study your past trades and decide that, for this particular market, my average slippage is X ticks. (or, the +1 standard deviation point of my slippage distribution for this market is Y ticks). If my finesse "works" and the market is offering me negative slippage of 2X ticks, I execute now and take the money! That is, I place a limit order to buy at (Open minus 2X ticks) and pray I get filled. Or, if negative_slippage at this instant of this trade is 2X ticks, I might tighten up the intraday stop. If I have an opportunity to cancel out the slippage of 2 other trades (and this trade too!) then: do it.
(I wrote "ticks" above, but many people measure slippage in dollars rather than in ticks. Others measure slippage in ATRs. Do whatever you think is appropriate.)
- You would be able to precisely measure the benefit of your slippage_reduction; the MOO half serves as a benchmark, an experimental control;
- You would cut your maximum remorse in half. If slippage_reduction turns out to be a huge disaster, your remorse for trying it is only half. On the other hand, if slippage_reduction is a wild success, your remorse for not fully embracing it is only half.
Another way to buy lower than the open is to follow the intraday trend and use an intraday trailing stop: Buy at (the lowest tick of the day so far) plus (V ticks), where V is some measure of intraday volatility. Perhaps, V= the average height of yesterday's 30 minute bars. Follow the trend down and when it finally reverses by V ticks or more, buy.
A third way is to use both a limit order and a stop order (one cancels the other).
You might study your past trades and decide that, for this particular market, my average slippage is X ticks. (or, the +1 standard deviation point of my slippage distribution for this market is Y ticks). If my finesse "works" and the market is offering me negative slippage of 2X ticks, I execute now and take the money! That is, I place a limit order to buy at (Open minus 2X ticks) and pray I get filled. Or, if negative_slippage at this instant of this trade is 2X ticks, I might tighten up the intraday stop. If I have an opportunity to cancel out the slippage of 2 other trades (and this trade too!) then: do it.
(I wrote "ticks" above, but many people measure slippage in dollars rather than in ticks. Others measure slippage in ATRs. Do whatever you think is appropriate.)