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> There is a fascinating article in this month's issue of Stocks &
> Commodities written by Jesse Wolff. He is the director of research
> for Northfield Trading (a CTA with 155 million under management)
>
> He talks about the hidden costs of slippage. Most telling to me is
> his graph showing average slippage in the S&P's of over $200 per
> trade on stop orders!!
There is definitely slippage in the S&P. However somebody throwing
around millions of dollars sees a lot more slippage than somebody
trying to sneak a few minis in & out of the market.
We trade large positions in the ES. In many cases we can get nearly
the entire position filled at our stop price.
Wolff is almost certainly talking about $200 per big SP. That's less
than 1 handle per RT, $40 per ES. $40 costs per RT is not out of
line, especially if you factor in $10 or whatever for commissions.
> This blows out most all day trading S&P systems. The sad thing is
> that most of them show results with NO slippage and commissions
> being taken out (at least a few popular ones anyway) If $250 was
> added as slippage to many of these system they would lose a
> fortune in historical back testing. This is in sharp contrast to
> their nice smooth rising equity curves shown.
Here I agree 100%. Even if you don't have much slippage on most of
your fills, there will be the occasional trade that blows through
your stop. Or the trade you miss than turns into a big win, or....
It's better to use a figure like $200 or even higher, and reject some
marginal trading plans, than to assume no slippage and start trading
a method that falls apart when you include realistic costs.
I always try to design my systems with large average trades, as large
as possible. I want some room for error, because errors happen.
Gary
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