To know about trading
On a regularly basis I will post here some background stories about trading. Well at least how I think about trading. Trading is a tough and lonesome job and is full of uncertainty and fear. But some things you have to keep in mind if you want to be good trader. You can give a comment if you like.

 













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To a theoretical approach this site is a starter, though basically in Italian it has many articles and links in English too



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  Tuesday, January 25, 2005


What is slippage?

Slippage is the difference between the price the trader expects to get and what he in reality gets. There is allways slippage when a trader enters the market bestens; slippage not being the difference between bid and ask (the spread).
This is due to the fact that prices allways change and the bigger the changes on the market (the more volatile it is), the more slippage the trader may expect.
The trader buying or selling at market (bestens) at random may have positive or negative slippage. Suppose he wants to go long on market X for price 100. Suppose that due to slippage he gets 99 and after closing his position on 104 his positve slippage was 1 point, the difference between his expected entry price (100) and the real price ghe got (99).
Now suppose he thinks the market is going down, he wants to sell (short) at market at price 100 but in he gets in at 99. After closing his position at, let say, 104 his negative slippage is 1 point (100 minus 99).

When tradding in an unsystematival way, like a monkey just throwing an arrow, the trader in the long run may have an equal amount of negative and positive slippages. But traders dont trade in an unssystematical way: they are trading some kind of system or at least they try to, they choose when they want to trade.
They are following some kind of signal which triggers their entrances or exits. This trigger can be anything: an indicator, a trendline, support or resistance or even another trader.
But you are not alone on the market: there are more traders getting the same signals as you do and the market as a whole reacts on these signals too. The result is slippage. Now this is in the long run allways in your disadvantage how good you are because if it wouldn`t all traders would allways be wrong in their decisions. You could even say markets wouldnt even move at all without slippage.
To avoid slippage the only way is to place Limit orders but they have disadvantages too: the market never may reach your desired price at all so you mat not get get what you want (in fact a possible result of what you wanted before you decided to place the limit order).
Slippage seen is this way is an extra cost to trading..

More you can find here: 
Analysis of markets
Slippage, Real and Imagined


10:22:47 PM    comment []


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