EricP >I believe you are overstating your 'fixed' cost of >each flip. You should include the cost of the spread, >but not double the cost of the spread. One trade (a >buy at the ask, subsequently followed by a sell at >the bid) will cost you a single spread. Ok Eric, I'm willing to be proven wrong here, but you'll have to work at it harder than a simple assertion. Please review my example in the following linked post and then tell me where it goes wrong? http://www.elitetrader.com/vb/showthread.php?s=&postid=424334#post424334 Also, review the image posted below which nicely shows a real trade with the delta and the 2x spread as it should execute in real life. The posted trade is the 4th flip on 12/19 if you want to correlate to the spreadsheet. On that trade we go long @56.03 and flip short @55.87. Now, I don't really care how you want to divvy up the loss, but the fact is that trade lost 16 cents BEFORE commissions (which is slightly above the average loser for the test period). We know that 6 cents is from the delta so if you want to call it one spread at 10 cents or two spreads at 5 cents I don't care -- it's still the same loss either way. (just for the sake of the argument, I'll say that I completely disagree with your premise of "only paying one spread per trade". On a simple long trade, if the spread is 3 cents at both ends and you lift the offer to enter and hit the bid to exit, you will have lost 6 cents (2x spread) to the guy who bids in and offers out (considering exact same trade times). Do the math.) Would be thrilled to be proved wrong as it would be a real boost to the system. JB
>so, effectively, the system is just a breakout >system in disguise. which means that whenever >the underlying instrument is not "trendy enough", >it will lose money. I couldn't agree more. JB
turok, you're right about the larger spread. however, even with .12 spread and a .60 target, the multiplier is still just 1.2, which is doable. if you were to say a .15 spread it would be a 1.25 multiplier. btw, where did you get bid/ask data? i have access to wld so i would like to test as well if possible.
I just asked one of our programers to give me an idea of what our average share increase per trade is. The number in the past three months was 1.262. That included all the cost of trading. As I mentioned before, our commission rate is $0.005 a share with IB. We use a fairly elaborated order management system to keep our costs down. We also use spread limitation techniques where the limit orders are fired instead of market ones. We also have a box that helps us with the short selling slippage. I hope it helps.
>turok, you're right about the larger spread. however, >even with .12 spread and a .60 target, the multiplier >is still just 1.2, which is doable. if you were to say a .15 >spread it would be a 1.25 multiplier. If the ".12 spread" you refer to includes the delta and commissions than your numbers work out fine. However, throwing made up numbers around doesn't cause our accounts to grow. KLAC is at the very tippy top of the range of movement stocks and it's target only ends up at .37. That target number isn't just arbitrarily determined, but rather derived from the behavior of the stock. Apply the .60 to KLAC and the performance of the system get's WAY worse. >btw, where did you get bid/ask data? i have access >to wld so i would like to test as well if possible. I started out in 2001 downloading gigabytes of data from several different sources (some of which are no longer around) and burning them to CD. You can get b/a from Qcharts back 6 months or so I believe, perhaps even further.
>>>If the ".12 spread" you refer to includes the delta and commissions than your numbers work out fine. However, throwing made up numbers around doesn't cause our accounts to grow. KLAC is at the very tippy top of the range of movement stocks and it's target only ends up at .37. That target number isn't just arbitrarily determined, but rather derived from the behavior of the stock. Apply the .60 to KLAC and the performance of the system get's WAY worse.<<< im not sure what you mean by the target being .37? i thought the target was supposed to be 1% or 0.9% of the stock price? i think this is where im not clear, and where abogdan can clear something up. if we're trading a $60 stock and buy/sell levels are 59.94 and 60.06, are our targets $59.40 and $60.60 or are they $59.34 and $60.66? if i misread what you researched above, but didnt you mention that out of 400 trading days, only on 16 days did it not reach a 1% target (excluding the half days)? however, abogdan mentions above that their avg. share increase per trade was 1.262 including the costs of trading, so they must be getting good fills i guess...
>im not sure what you mean by the target being .37? >i thought the target was supposed to be 1% or 0.9% >of the stock price? Nope, you haven't followed abogdans formula... From: http://www.elitetrader.com/vb/showthread.php?s=&postid=409564#post409564 O = (OpenBid + OpenAsk)/2; UpSwing% = 100*(O - LowestAsk)/O DownSwing% = 100*(HighestBid - O)/O If UpSwing > DownSwing Then MaxSwing = UpSwing Else MaxSwing = DownSwing End Find the Min value of MaxSwing for at least 250 days. (GuaranteedSwing) ProfitTarget = 0.9*GuaranteedSwing In other words, the target is 90% of the minimum move over the last 250 days. >however, abogdan mentions above that their >avg. share increase per trade was 1.262 including >the costs of trading, so they must be getting good >fills i guess... abogdan didn't say that this was his average increase on KLAC, but rather implied that it was an overall number. Remember he is running on 200 stocks. Also he has the ability to limit the spread though techniques and boxes. This is clearly an advantage that you and I don't have. JB
youre right, i didnt see the guaranteedswing part of it. maybe this is where i disagree with abogdan, i think it should be more of a mean value of the past 250 days and not min value, of course using a mean has its drawbacks as well.
>i think it should be more of a mean value of the >past 250 days and not min value I think it should be the most profitable value and the mean ain't it (been there tested that). Good luck on your own data download and research. As I'm sure abogdan can confirm, analyizing b/a data over any significant period of time is a non-trivial effort. There is just so damn much of it to claw through. JB
I stand corrected. Average spread (difference between smoothed bid/ask) at time of trades: $0.036 So for each flip we have a "fixed" cost of delta + (spread*2) + commissions. That's 6 + 7.2 + 2 or 15cents rounded off. So out of each aborted attempt (flip) at 37 cents we lose 15 of it to those costs. That's over 40% right there. So perhaps now you can see why the average multplier is ~1.45 I was thinking that the "cost of delta" was the delta between the open and the upper band, and so the cost of delta would need a 2x factor and the spread would not need the 2x multiplier. Thinking through the example, I now see why the spread would need the 2x factor, and I assume that your "cost of delta" is the difference between the upper band and lower band (not distance to opening price). Thanks for the explanation. -Eric