Normally data comes in either bid or ask chart format. Most commonly sold in bid chart format. (only shows ticks for the bid) Now how would you backtest with Spread and Slippage? Do you guys actually calculate what the ask will be for the time? Or just treat the data as average price and add 2 ticks for spread and slip every trade? . Many thanks
I'm running into a sort of similar issue as well. I have more data including bid + ask volume + whether the trades happen on the bid or ask (not tick by tick but at least on 5 second intervals). I have a short term trading system that so far forward-tests / real-time sim-tests profitably on the ES-- if there are no transaction costs. But paying 2 ticks round-trip for the bid/ask spread, slippage, and commissions makes the strategy not worthwhile. I've tried to adapt the strategy to high-time frames and using SPY + ER2 but the edge disappears. The good thing is I have no filters on the strategy, it is very basic, so I think there is room for improving performance , though doing so would be as difficult as coming up with the original "edge/character". I basically need to stack edges that are compatible so to speak to make it worth trading if transaction costs are what I think they are. And/or I need to look extensively at the effect of limit orders instead of market, etc, to see if the missed fills and worse performance on profit targets is a larger or smaller hit than reducing transaction costs. I'm using a custom Java program for research so I will need to figure out how the priority queues work to test limit orders.. not quite sure how to simulate them at this point. -Taric
Is this true? RT streams I use have ticks for trades, bid and ask. Exchanges T&S post mostly trade ticks. Could you give an example for a source of your "bid" based charts?
got my data from ANfutures. bid only i think. my backtesting software is amibroker and i don't think they can display bid-ask together. (ok, i could backtest twice...once for longs and once for shorts) but i assume adding 2 ticks for slippage/spread/comms should be okay in most cases? (assuming the real spread is 1 tick)