how do you define the price?

[da-net]

just tossing out some thoughts...

first...if you are using historical data and attempting to using a timeframe as small as 1 minute. would there be enough representative data in each specified time frame?

second...if you are considering stocks for example. should you not also consider the volume as it has an impact upon pricing per trade?

third...would it not be more accurate if you use the open + close / 2 or some other similar calculation since the vast majority of trades are within this area?

fourth...if you were to use high and low. would your price data be flawed because of someone that misplaces a decimal point or something like that which could cause a huge price spike?

 

[ChicagoMan]

Quote from da-net:
first...if you are using historical data and attempting to using a timeframe as small as 1 minute. would there be enough representative data in each specified time frame?

1 minute might as well be an eternity IMHO. For any active product, especially stocks, there should be plenty of data within any minute interval during the trading day.

Quote from da-net:
second...if you are considering stocks for example. should you not also consider the volume as it has an impact upon pricing per trade?

third...would it not be more accurate if you use the open + close / 2 or some other similar calculation since the vast majority of trades are within this area?

Obviously there are an infinite number of formulas that could be used for determining the "price"... I could define the price of a stock as the midpoint of the bid and ask times a normalized value of the outside wind speed. Isn't the answer to this "basic question" the basis of a lot of automated trading?

Quote from da-net:
fourth...if you were to use high and low. would your price data be flawed because of someone that misplaces a decimal point or something like that which could cause a huge price spike?

I would chalk this up as a non-issue. Either data is good or your systems should recognize anomalies (certain order-of-magnitude anomalies like misplaced decimal points).

 

[mercorex]

Quote from limbonic:

This might be a FAQ, but given a historical data feed like opentick (specifically, quote and trade tick streams), how do you define "price"?:

- bid/ask midpoint
- last trade

There is the additional complication of multiple trading venues: the primary listing exchange, regional exchanges, ECNs, etc. What do you find most meaningful for your models:

- primary listing venue
- NBBO, or some reasonable approximation of the US "composite market"

My interest angle here is to try to model historical price relationships between multiple instruments (factor models, that sort of thing) at intra-day frequencies and so what "price" is requires some thought before blindly storing a few hundred gigs of data.

(I am not interested in charting/OHLC data for multiple reasons, one of them being that OHLC data is derived from the original raw data which is fundamentally quotes and trades.)

Thanks.

I would use the ask if I am buying and the bid if I am selling/shorting. If you don't do this in your models and you have a high velocity model the spreads may compromise your risk and profit calculations. Also remember that you can't buy at the end of day last trade price if it opens down the next day! So you have to buy/sell at the next ask/bid on the next trade in your model in order to be conservative.

 

[andread]

Quote from limbonic:

This leaves a few questions (relevant at very high frequency):

1. is the last price more meaningful than bid/ask midpoint?

Think about this: the last price may have been a market order and whoever took liquidity paid the spread cost. Depending on whether the market order was a buy or a sell, the price will bounce between bid and ask somewhat. Just looking at the last price only seems sub-optimal, since it has this spread error in it.

2. if you are reducing prices of several trades that occurred within a certain interval (say, 1 min) to just one representative price, why do you think the *last* price is the most representative? Why not, say, the average over 1 min?

But those are two different cases, aren't they? If you are talking about bid-ask then you are talking about values that actually don't have a real place in the trade. The price on a tick reflects the equilibrium in that specific instant, that is, what two people in the market consider a fair price.
If you look at a wider time range, then you look at all the "equilibrium" moments, that is, the moments when trades are settled. In that case it would make sense to consider a value indicative of the entire timeframe, like average, variance, OHLC, or something like that.