Where can I get that rate? 1/2 cent per 100 shares? So if I buy like 700 shares of SPY it would cost me 3.5 cents?
Not really. But every mechanical system I've tested that was unprofitable, when I reversed the buy and sell signals, it was still unprofitable. I don't understand. Buy @ $100, sell @ $95. Reverse that and it should pretty obviously be profitable. I'm not even talking about intraday scalping systems; I'm talking about daily chart stuff.
Spreads don't have to be "overcome." They're not a "cost," unless you're trading with a forex bucketshop that forces you to buy the ask and sell the bid. If you use a market order to enter and a limit order posted ahead to exit, you're no longer paying the spread, at least on winning trades. Losing systems reversed don't become winning systems not just because of commissions and slippage, but because the equity curve is relatively random on losing systems and whether or not you reverse the buy/sell signals, you'll end up crossing the 0 equity barrier at some point in time with either system.
------------------------------------------------------------------------ Quote from spindr0: Spread and commissions are always a factor because you have to overcome them just to break even. If you're trading at Scottrade at $14 a round trip, that's the first thing that you're doing wrong. One broker offers 1/2 a cent per 100 shares and it can be even lower if you go unbundled and provide liquidity. One dollar per round trip (or less) is a HUGE difference from $14. ------------------------------------------------------------------------ Sorry for the misstatement. It's 1/2 a cent a share which translates into the one dollar per round trip that I mentioned. Technically, even that's not true since there's a minimum charge of $1 per trade so a 200 share trade would cost $1 each way for a total of $2 for the round trip. The only way that Scottrade et al would be better would be if you're buying > 1,400 shares so the $7 is less than the 1/2 cent a share (I'm assuming that Scottrade doesn't have a low share limit at that rate). A big advantage of the 1/2 ct a share is that you can scale in and out w/o penalty. 1,400 shares done at once is $7 and 1,400 shares done 200 at a time is the same $7. At Scottrade, modified orders after a partial fill and limit orders filled across different days will result in multiple $7 charges. 1,400 shares done 200 at a time (7 trades) would be $49. Commissions can be very significant if you're not careful.
That's a contradiction since if you open at the market price, in order for it to become a winning trade, the market must move in your favor and AFAIK, that's overcoming the spread.
In actual trading or backtesting? It makes a difference. In backtesting they lose because most backtesters test for stop-loss first. Then, if volatility is high, both longs and shorts lose money. Experience is talking here, so pay attention. I ran into this problem long ago. In actual trading most intraday losing system will fail when reversed due to the fact that market makers retain their house edge irrespectivelly of the tactics of other players, i.e. the game is rigged. Acutally, they setup the game so don't expect them to lose to a system. "System" means nothing to them. The only solution is to trade larger timeframes. There though the difficulty of finding good losing and good winning systems is the same because they are mirror images. I think someone said that already.
Psychologically it is easier (well, it happens more often) to add to a losing position than to a winning one. Letting losers run and cutting winners short happens more often than the other way around. So the barrier to reversing a system is more psychological than anything else. As long as you can program it, (and take out the emotions) you have a winner....