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Subject: Midam, commissions, and slippage
From: Conrad Bowers <cpbow@xxxxxxxxxxxxx>
Date: Sun, 14 Sep 1997 16:22:23 -0400
Newsgroups: misc.invest.futures
Organization: EarthLink Network, Inc.
Reply-To: cpbow@xxxxxxxxxxxxx
I was considering a publically available technical analysis service
(commodex) and wanted to see if I could use it with Midam's. This study
drove home to me how important the slippage/commission figure is and
raises questions about whether doing the small contracts is viable at
least with this system. (Commodex is a moderately active end-of-day
system trading maybe 10 times per year per commodity.)
I used their track record for 1996 which has its own problems about
what prices they use, but for this test I ignored these reservations.
They use a commission and slippage figure of $30 - 45. Well, I pay $29
in commissions alone. I figured a slippage of 4-8 tics, depending on
commodity.
Results:
commodity their result Midam result Midam contract size
with larger (rel.) slip.
corn 4517 287 1/5
oats -2810 -1310 1/5
wheat 4508 200 1/5
canadian $ 625 -288 1/2
pound 4415 73 1/5
gold 2530 388 1/3
live cattle 1212 -24 1/2
live hogs 2688 496 1/2
total 17,685 -177
drawdown -4300 -2700
(weekly,closed)
I suppose the biggest problem is that a $30 commission on a Midam is
like a $150 commission on a fullsize contract, for the 1/5 size ones.
Plus I used a relative slippage of 2-3 times as great as theirs (but
scaled down to the Midam size).
II. What's the result using bigger slippage/commission (80 - 110 instead
of their 30 - 45) on the regular size contracts?
commodity their result big slip result slip/comm used
them this test
corn 4517 3817 30 80
oats -2810 -3910 30 80
wheat 4508 3428 30 90
canadian $ 625 -95 45 90
pound 4415 2526 45 80
gold 2530 1620 45 110
live cattle 1212 57 40 90
live hogs 2688 1753 40 90
total 17,685 9196
drawdown -4300 -6900
(weekly,closed)
ROA 160% 82% profit/(draw+margin)
Of course maybe 4-8 tics is too much slippage. I often get about 2.
Anyway, I guess these are the conclusions I draw.
1. Be wary of testing/track records with too little (or no) deductions
for slip/comm. Most vendors use $75 but I've seen several taking no
deductions. Don't just assume the "small" differences will iron out.
Just increasing the slip/comm from about $40 to about $90 above halved
the return and increased the DD. In this particular case, however,
fairly conservative (large) assumptions for slippage still are
profitable on the full size contracts (**subject to the limitations of
their track record** which have been discussed elsewhere and would have
to be tested separately).
2. Don't just assume you can apply a program tested on regular data to
Midam without a recalculation taking into particular account your
commissions.
This seems to leave me, the very small ($5K) account holder, with a few
less choices:
It seems I can't diversify at the expense of using Midams if I'm using a
mechanical system that is at all active. I could try to be more
selective (e.g. using more filters in the selection of trades, or using
fundamentals/others' predictions to take just a few trades; but how to
test that and what about the time and subjectivity this takes?
Or I could plan to do one or a very few full size contract. Now the
problem is that without diversifying, the drawdown is likely to be 5 -
10 times the margin with most of the mechanical systems I've seen.
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