Slippage - Accounting for Bid/Ask spread

November 27th, 2019, 11:36 AM

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.

November 27th, 2019, 03:22 PM

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.

Slippage - Accounting for Bid/Ask spread

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Slippage - Accounting for Bid/Ask spread