Wednesday, April 2, 2008

Trading Cost Calculations

I want to take a moment to remind everyone that the tests run on this blog do not include slippage and broker’s fees. I will only add slippage and transaction costs when testing money management and position sizing strategies in the future.

An easy way to calculate broker’s fees is to subtract your round-trip trading cost from the average trade (win & loss) figure given on the summary report. Remember that these test use $1000 lots so adjust your numbers accordingly with your typical trade size. You will note that MANY of the tests we have run so far would turn to a negative expectancy if you use any of the ~$20 round trip brokers. Please keep this in mind as you review and consider these results. Many of the 8% trailing stop tests generate more in broker's fees than net profit.

To drive this point home, I've decided to use the following example. The system tested here, with the 8% protective+20% profit target, generated 7678 trades over a 10 year period. The difference in commisions alone between TD Ameritrade (for example) and Interactive Brokers would have bought you this...

Aston Martin V8 Vantage

(7678*$20)-(7678*$2)=$138,204 (asuming lots under 200 shares)

1 comment:

Anonymous said...

Wow that is crazy. I've never really thought about it like that before but that is absurd. This would make a great commerical for Interactive Brokers.