When growing your money tree with a trading system there are a plethora of pesky little details that happen “under the bark,” “inside the root ball.” Most of the time you don’t have to furor your brow over them because the strategy, the code, handles it all.
However, there are times when you scratch your head and wonder “why in tarnation did that happen?”
Today we are going to talk about some of those head-scratchers.
1. What is a Trade-Through?
QiT uses a limit order to enter all positions.
We identify a candidate, according to the rules of the algorithm, then we throw our cast into the river and sit back with a can of Coors and let the fish take the bait.
At least 70% of the time, our limit orders don’t get filled because the fish were not biting. On to the next fish.
However, there are times when our limit order is the daily low and we end up in that most revered place, “buying at daily lows.” These are the fish we hold up to have our buddies take our pictures with.
There isn’t a trader alive, or dead, who wouldn’t give up his first-born male child to buy at daily lows.
Unfortunately, not everyone will get filled at those daily lows. It will depend on liquidity and the broker you use. Some QiT members will be filled, some will get partial fills and some will not be filled at all.
What do we do?
As a service what do we do? We originally thought we wanted to be as fair as we could to all members so we implemented a rule that required everyone who got a fill at daily lows to exit the position the next morning bringing all members back in sync.
This seemed to be the fairest way to handle it
2. What is an nBar?
The nBar is the circuit breaker we use on a trade. It is the number of days a trade will be allowed to stay open before we exit. Each portfolio will have a different nBar stop based on the optimizations.
3. What is a Slot?
QiT uses something called Advance Slot Technology. But what exactly is a “slot.”
Each strategy allows a maximum number of positions and each position is allocated a slot.
Now what happens if there are more candidates that fit the startegy criteria than the algorithm will allow?
In this case, all trades that fit the strategy rules are sorted on their on their respective HV(100).
The trades with the highest HV get a slot.
This means we trade the more volatile stocks for research has shown us we want to be where the action is.
What happens when all Slots are filled?
Let’s say the algorithm’s rules are 10 positions maximum. The strategy will try to fill each slot. Let’s say 6 of those slots are already filled so it will try to open 4 more – this is very easy and straightforward.
But what about the slots that are filled today but have been signaled to exit tomorrow?
If the exit is a market at open, the slot will become available right away but a limit exit becomes a little trickier. There could be more than 10 open positions for part of the day, or until the limit exit is reached. This is not a problem with a margin account but it is with a Cash account.
The algorithm will recognize a cash account and not allow more than the maximum number of slots to be filled.
4. Tick Size Pilot Program
By now, most people who actively trade small-cap stocks have run into pricing for certain issues that reflect an increment of 5 cents. This is the result of the Oct. 3rd, 2017 implementation of a two-year plan called the “Tick Size Pilot Program (TSPP).”
This plan was initiated by the SEC with the goal of improving liquidity of small cap securities
Details of the plan can be complicated.
Our goal is simply to know how it affects us and the strategies we trade. If you want more information I have two Blog articles you can read.