Fast market Lesson: Stops can get rejected

[IAS_LLC]

So curious what did you decide to do in such case? If I understand correctly, the exchange rejected the order because trigger price was outside of the protection range. I don't think there is anything you (or vendor) can do about it. My system re-submits but if I get three rejects (configurable), the strategy is suspended and manual involvement is required from that point.

For now, log as a defect, and fix later.

In the short term, market on reject implemented locally. But, somehow... I'd like this logic sitting server side. RTrader's market on reject logic appears to be implemented locally, and that has a risk associated with it. Haven't put much thought into how I want to attack that problem. Might just be a risk of doing business.

 

[punisher]

For now, log as a defect, and fix later.

In the short term, market on reject implemented locally. But, somehow... I'd like this logic sitting server side. RTrader's market on reject logic appears to be implemented locally, and that has a risk associated with it. Haven't put much thought into how I want to attack that problem. Might just be a risk of doing business.

I'm too dumb to know exactly what are you talking about, but when you say that Rtrader's ... market on reject is implemented locally, do you mean their's servers or the local application on your computer? I think it is on their servers. Since all stops rest on their servers, doesn't R-Api cover or allow similar functionality?

 

[IAS_LLC]

I'm too dumb to know exactly what are you talking about, but when you say that Rtrader's ... market on reject is implemented locally, do you mean their's servers or the local application on your computer? I think it is on their servers. Since all stops rest on their servers, doesn't R-Api cover or allow similar functionality?

That functionality appears to be implement in the rtrader software the resides on your computer, not the server. Rtrader is presumably built on top of the same RAPI, and the API docs don't indicate such capabilities

 

[aldrums]

Thanks for your reply.

Sure. It sounds like you have a plan, so that is good. Here are a couple things maybe you haven't thought about:

Use volatility based stops and profit targets. On a day where the market makes a 240 point swing, do you really want to be shooting for an average profit of a measly 1.25 points? Take a snapshot of volatility each day at the same time, then keep a running average of it. Then you will know on any given day whether volatility is above or below average, and can adjust your system accordingly. I use an 11 period average of the ATR on a 5-min chart. You can use whatever you think works for your system.

It sounds like you are serious about making trading your business, so you better plan it like one. You better know what your transaction costs are going to be for your system. Let's say your commission is $2.00 per contract and your system as it stands somehow has a win/loss ratio of 50%, even with your super tight stops. So in 200 trades, you gain 125 points and you lose 50 points for a total profit of 75 points. According to my calculations that is a $1500 profit. The total commissions on 200 roundtrips (400 contracts) is $800, which is 53%! Are you comfortable giving away over 50% of your business profit to your broker? Of course these are all just projections, but the point is, plug all this stuff into a spreadsheet and estimate your transaction costs.

Peace out.

 

[punisher]

It sounds like you are serious about making trading your business, so you better plan it like one. You better know what your transaction costs are going to be for your system. Let's say your commission is $2.00 per contract and your system as it stands somehow has a win/loss ratio of 50%, even with your super tight stops. So in 200 trades, you gain 125 points and you lose 50 points for a total profit of 75 points. According to my calculations that is a $1500 profit. The total commissions on 200 roundtrips (400 contracts) is $800, which is 53%! Are you comfortable giving away over 50% of your business profit to your broker? Of course these are all just projections, but the point is, plug all this stuff into a spreadsheet and estimate your transaction costs.

So what is your point? If his system is profitable (positive expectancy) then all the commissions are "cost of doing business". Should he keep trading it OR forget the profits and look for another system only because the overall costs are "uncomfortably" high % of the profits?

 

[tomorton]

Yes this is a market lesson, stops can be missed when price gaps past them.

This can't be eliminated, so how to minimise the probability and the level of damage to the account?

Go to long-term trading.

This also reduces the total number of transactions, reducing total fees payable, and cuts screen-watching time to a fraction - in turn reducing the likelihood of impulsive trading, emotional pressure, over-focus on entries and over-trading.

Am I biased against day-trading? Yes. I am entitled to be biased as I'm making money by long-term trading.

 

[qlai]

how to minimise the probability and the level of damage to the account?

Go to long-term trading

You may be right, generally speaking, but in this case long term trader is actually at a disadvantage. Effectively, you are forced to day trade out of your position. The worst part is that even a regular market order (not stop) is not guaranteed to be filled in full. Even worse, the unfilled portion is not cancelled back but sits on the book. It may be good logic for 99.9% of cases, but will really hurt you that 0.01%. One of the advantages of automating your strategies is that it requires you to be paranoid about all kinds of unexpected events. Day trading a strategy is one of the best ways to TEST your code, even if it is going to generate excessive commissions.

 

[IAS_LLC]

Copy on all, and thanks for the insights. Fees and commissions are absolutely part of optimization process, but aren't something I try to minimize (from buy/sell strategy standpoint, obviously I seek the cheapest fcm that matches my needs).

In my "production" strategy, I optimize for a combination of variance and mean return (after fees). And I've found, so far, that I can best minimize variance by trading on shorter time frames.

 

[pers]

100% custom combination of c++ and python. I use Rithmic API for data and execution.

Newbie here. Doesn't one need an introducing broker to be able to use Rithmic API for data and execution? They told me that I do :-( Naturally, I prefer to have any middlemen.

 

[schizo]

So my trading platform/system was trading for the first time in a fast market today (I shut it down for the last couple of days, out of fear). Market taught me a lesson, and exposed a flaw in my execution logic: The market will reject stop orders if the market is already below the stop price, leaving a position un-hedged. I should have known this.... but I didn't, and almost got bit. Fortunately, I was paying attention and was able to manually step in quickly and turned a 80 tick loss into a 20 tick gain (via luck, not skill).

Moral of the story.... be careful out there, especially when you're auto-trading and your system is walking into unfamiliar territory.

Stop orders are divided into either stop MARKET or stop LIMIT orders. So, in your case, had the market gapped down and was trading below your "stop market" order, then your order would have been executed immediately as a market order. If your order was a "stop limit" order, then your order would have become a limit order. Hence, I assume you chose stop limit rather than stop market.