If you trade stocks especially during the morning hours you'll find that the spreads on these suckers unless your trading the most liquid of liquid stocks are huge. Therefore you can not afford to enter MKT orders or marketable LMT orders. So you have to enter LMT orders or else you have no chance of creating something profitable. When I started designing the system, i took historical data and created a simuation accounting for slippage & commission, well not sliipage in the literal sense but at least a cost due to not getting filled. What I'm noticing is that my results do not match the realtime backtest. This is because i'm not GETTING FILLS. I'm only getting fills on the ones that go against me So then I changed my system around a bit. I made it that I would ALWAYS get filled when there was a trigger. What I tried to do was if I wanted to get long, I'd enter a bid @ the current bid, and if the bid changed replace with the most current bid. I tried this, but this really didn't have any help getting fills and I kinda believe that the latency from exchange to my internet connection was too much that I wasn't always parked appropitately. I wonder if it could help colocating right near the exchange exchange? I don't want to throw away this strategy that is clearly profitable on the realitime backtest!
welcome to the world of day trading. it isn't world of historical backtests. clearly it is NOT profitable if it is going off of trades that it can't get. and to answer your question latency is not the issue unless you are trading on a 56k modem.
If you are trying to enter Longs by being on the bid and Sell by being on the ask you will probably get filled less than 10% of the time. That is why you are only getting filled when they go against you. Also ECN's hava a thing called a "Pegged Order", it will always keep your order at the inside bid or offer, exactly what you are trying to write code to do but the ECN's can do it with less latency. You need to lift offers when you buy and hit bids when you sell and pay the spread between the bid and ask. Otherwise you will neve get filled. Sorry if that kills your systems profitability. Backtesting and Paper Trading rarely hold up in a realtime market environment because of slippage!