How to Determine Slippage to use in Back testing

[simple_goodoboy]

Hello NT team,

I back test scalping trading strategies in NT8 Strategy Analyzer, so every tick counts.

1. Would you agree the best way to determine the slippage I should use during my back testing is to run a strategy with real money and real broker, and measure the slippage I am getting for about 50 trades or so?

2. Or should I use the Simulated measured slippage as a starting point? For example, I am seeing about 3-5 ticks slippage in NT SIM for NQ.

I am ok with risking some money on my strategy if leads to accurate back test results as close as possible.

Thanks

[NinjaTrader_PaulH]

Hello,

Thanks for your post.

1. Would you agree the best way to determine the slippage I should use during my back testing is to run a strategy with real money and real broker, and measure the slippage I am getting for about 50 trades or so?

Slippage will be based on several factors including latency between you and the broker/exchange, and market volatility.

Theoretically, you could get an idea for the amount of slippage that you could receive by measuring the fill prices of market orders vs the price at which you have submitted the market order when there is greater volatility. However, we would not necessarily recommend sending live trades just to measure slippage.

If other community members would like to share how they quantify their slippage for use in backtesting, they are welcome to share their experiences

The simulation account (SIM101) has random delays between order states to simulate slippage, but this should not be taken to heart as real-life slippage

From the Help guide on Historical fills (backtesting) (link below) : "Slippage can be added to your order fills to help mimic real market conditions. The value is expressed in "ticks", the minimum value of fluctuation for an instrument, and is only applied to market, stop-market and Market-if-touched orders.

Slippage in backtests is not applied on every entry/exit. It is applied when there is room in the bar for the specified slippage. From the help guide, "NinjaTrader will add the slippage to each order however you cannot have more slippage then the high/low price of the next bar." Please see: https://ninjatrader.com/support/help...lFillAlgorithm

This makes slippage somewhat random, like it is live trading.

[simple_goodoboy]

Hello,

Thanks for your post.



Slippage will be based on several factors including latency between you and the broker/exchange, and market volatility.

Theoretically, you could get an idea for the amount of slippage that you could receive by measuring the fill prices of market orders vs the price at which you have submitted the market order when there is greater volatility. However, we would not necessarily recommend sending live trades just to measure slippage.

If other community members would like to share how they quantify their slippage for use in backtesting, they are welcome to share their experiences

The simulation account (SIM101) has random delays between order states to simulate slippage, but this should not be taken to heart as real-life slippage

From the Help guide on Historical fills (backtesting) (link below) : "Slippage can be added to your order fills to help mimic real market conditions. The value is expressed in "ticks", the minimum value of fluctuation for an instrument, and is only applied to market, stop-market and Market-if-touched orders.

Slippage in backtests is not applied on every entry/exit. It is applied when there is room in the bar for the specified slippage. From the help guide, "NinjaTrader will add the slippage to each order however you cannot have more slippage then the high/low price of the next bar." Please see: https://ninjatrader.com/support/help...lFillAlgorithm

This makes slippage somewhat random, like it is live trading.

Thank you so much.

I perfectly understand and agree what you are saying.

Just to make sure I full understand.

The slippage in real world will vary based on latency between you and the broker/exchange, and market volatility? It could be 1 tick, 2 tick, 7 tick, 3 tick, it all depends?

I think, I understand what you are saying.

[NinjaTrader_PaulH]

Hello,

Thanks for your reply.

When you place a market order, the order must be transmitted from your PC to the broker/exchange and is then filled. The order transmission time is one variable. When you place a market order at the current price, by the time the order gets filled the current price may have moved based on the volatility at the time.