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2019, 09)31
The exit on that strategy is on the open. Many people don’t like exiting on the open because of the
volatility and the belief that you will get a bad fill. What if we exit instead using limit orders? I
tested this idea years ago. Time to revisit an old idea.
Just because the limit price gets touch or exceeded does not guarantee we will exit or fully exit in
real trading. We must live with that issue for these tests.
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Exiting using limit orders – Alvarez Quant Trading 17.10.2019, 09)31
Set up Rules
1. Stock was a member of the Russell 3000 index, is not currently a member of the index
2. Stock is traded a major exchange.
3. The as traded price is greater than $1
4. The 21-day moving average of close*volume greater than $500K
5. Close is greater than the 100-day moving average
6. Two period RSI is less than 10
Entry Rules
If we have a set up, then enter a limit order for the next day at 5% below the close. Order good
for one day only.
Only place enough orders so if they are all filled you are not in over 10 positions
If have multiple set ups, then rank from high to low by the 100-day historical volatility.
Exit Rules
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Exiting using limit orders – Alvarez Quant Trading 17.10.2019, 09)31
Base Results
Exit Rules
If RSI is greater than 50 at the close, place a limit order to close the position [.5,1,1.5,2]% above
the close
Order is good for one day only
OR
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Exiting using limit orders – Alvarez Quant Trading 17.10.2019, 09)31
A small change in the numbers. Not sure what I was expecting. For a little piece of mind of not
having to deal with the open, this is an interesting way to get out.
Now all the results are slightly better than the original test. CAR, Avg % p/l, % winners are all up
with average hold down.
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Exiting using limit orders – Alvarez Quant Trading 17.10.2019, 09)31
Spreadsheet
Fill in the form below to get the spreadsheet with lots of additional information. This includes more
RSI exit values and limit values than shown. See the results of all variations from the optimization
run. This includes top drawdowns, trade statistics and more.
Final Thoughts
I will have to try this on my mean reversion strategies I trade. I like that for small percent exits most
the stats I care about improved some.
There are two issues. Just because the limit price is touched or exceeded does not guarantee you will
get out of the position or you may get a partial fill. These are always annoying to deal with.
Then comes the possible psychological problem of trading this. What if the stock is up big, then you
place the order to get out but then it turns around and craters? I will have to look at any trade lists
to see how often this happens.
Backtesting platform used: AmiBroker. Data provider: Norgate Data (referral link)
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Hi Cesar
Great post and pleased to see that you’ve seen similar slight improvements
in your numbers when implementing limit exits. I think the biggest positive
for me wasn’t the performance but rather the closer replication of actual
exit fill prices compared to back tests.
Your point about limits not being filled, even though a high may have
exceeded it, is a great one. I’ve been trading a variant of this strategy for
well over a year now, and I’ve found a particular OHLC configuration where
non-fills tend to be acute.
For slightly illiquid stocks, where the opening price represents the exact
high of the day, I’ve found that I can get a lot of non-fills because my limit
order doesn’t participate in the morning auction and the market is so thin
that the next trade price is way below my limit (and remains there for the
rest of the day).
It was leading to such differences between live and testing that I ended up
having to do two things:
1. I tightened up my stock universe filter to exclude more of the illiquid-
looking stocks.
2. Added a prudence measure to the simulation, such that if the open=high
and high>limit price, I would not assume a fill (unless the close>limit
price).
The latter measure did have an effect on simulation performance but not
too adversely.
My live results have been mirroring simulation much more closely since
making these changes in May.
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Exiting using limit orders – Alvarez Quant Trading 17.10.2019, 09)31
Best Regards
Craig
Glad you liked the post. When testing illiquid stocks, I too do not take
the fill when Open = Low (for long systems). I wanted to show another
way of getting out besides the open. One could exit half at the open and
the other half at the limit. Thus spreading the shares out on illiquid
stocks.
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