forex-scalping.com

Closing a position costs more than opening it, and why

Entries get all the attention, yet exits are where scalpers lose the most to execution. When a stop is hit, the order is converted to a market order during a move that is already against the position, with liquidity typically thinning out. When a profit target is hit, the limit gets filled with no extra cost, but it sometimes misses by one tick.

That asymmetry means a system with symmetrical stop and target distances is not actually symmetrical after costs. Average losses run longer than planned by the slippage on stops, and average wins come in right at target or a touch less.

To quantify, compare the intended exit price with the actual exit price for every stop and every target in the log. Many traders find stops averaging a pip or more beyond intent, while targets average zero.

Then adjust. Either widen targets to compensate, tighten stop placement logic, or move to a style where exits are managed by price action and not fixed orders.

Has anyone measured exit slippage separately from entry slippage, and by how much did the two differ?

Measured it on four months of my log. Stops averaged 0.6 pips beyond the intended level on EUR/USD, and targets averaged 0.05 pips short, mostly zero. So a strategy with a 5 pip stop and 5 pip target was really a 5.6 pip loss against a 4.95 pip win. At a 55 percent win rate that changes expectancy from 0.5 pips per trade to roughly 0.2. Over 500 trades that's about 150 pips I didn't know I was losing until I split the data this way.

I looked at this after a month where my results didn't match the planned risk, and what I found was that my stops weren't equally bad everywhere. Stops placed just below an obvious round number slipped more than the rest, and the biggest differences came in the last half hour of the New York session when liquidity thins out. A stop at a quiet time on a pair like EUR/GBP barely slipped at all.

That led me to treat stop placement and exit timing as part of the strategy. I stopped placing stops at round numbers and started sitting them a couple of pips beyond, accepting a slightly smaller position size to keep the risk the same. It cut my average stop slippage from roughly a half pip to a bit over a quarter of a pip over the next two months.

One thing I'd caution against is trusting a single month. Exit slippage is lumpy, with one bad news candle able to add as much as ten ordinary days, so look at the median as well as the mean.