Also, think about what happens when one person places a limit order on open (LOO) while you place MOO order. Possibly without your order the opening price would be different. Basically you may be worsening the opening price by buying without caring for that price, while without you the opening price could be different. (though that could happen in live trading, not paper)
You might be onto something. Generally, I see better results on the backtest when I use MOO as opposed to MOC. MOC results are also highly unrealistic though. So I feel something else must be going on. Just out of curiosity what do you trade now? Futures?
I stream paper penny stock trades on Twitter, and was trading some of them live until recently, but now I’m focusing on options as they are more scalable. Never traded futures.
Not sure I understand. In my backtest I use either the Open, or the Close trade price I have for that day. I don't have Bid / Ask historical data. In my backtest, I assume that my order (which is <= 1% of prior days volume) will be filled at those prices. In my forwardtest, I just send market orders (also limited to 1% of prior days volume) around the opening/closing and get simulated fills at the top of the book Bid / Ask prices around the opening/closing times. The paper trading simulator is handled by the broker, so I do not have full control of what they do. But I benchmarked the fill prices against the opening/closing trade prices for that day and generally they are not too far off. From what I understand, the broker does not model market impact, but if the volume is insufficient my orders do not get filled / filled fully.
I would have to get back to you on that. But if I remember correctly adding .002 was significant (not sure about destroys through). Is there a rule of thumb here?
Wouldn’t the simple process be to take your paper trading/forward test results and backtest over the period of the forward test and compare trades/executions?
Yes! That's what I have been attempting for the past couple of weeks. It was somewhat informative, and I uncovered a few minor issues this way but I didn't quite get to an 'Aha!' moment. If I substitute the execution prices and shortlists from my forward test to my backtest, I get something that is very close to my forward test (I believe the remaining difference is due to the interest I pay on borrowed stocks, which I don't simulate in my backtest yet). The problem is that I don't have a lot of data collected from my forward test (about 3-4 weeks). I am not sure if it is my strategy that is underperforming in the past few weeks due to unique market conditions, or there's some elaborate bias going on and everything I get from my backtest is in fact garbage. And my actual strategy doesn't work, which is kind of what I see in my forward test. I know my writing is confusing. Sorry about that. But then again it has been a confusing journey
Open and closing periods are the most volatile, excluding intra day news event generated moves. Assumptions are made using opening/closing prices which mostly don't hold true. The only real test to trust is real trading.