I know sometimes the 'trading vehicle' can be a bit more volatile than the 'tracking vehicle', but this morning I was able to witness even more volatility than I had imagined.
The picture above displays a 2 minute chart of the Russell 2000 (tracking vehicle: $RUT.X) over a 2 minute chart of the Russell 2000 mini future contract (trading vehicle: TFU09). I drew some support and resistance lines which roughly outlines yesterday afternoon's base, the breakout above it, the run up into the close and then this morning's open.
As we can see, shortly after today's open we sold off. While the tracking vehicle stayed above yesterday afternoon's support line, the trading vehicle traded down to it, and then a good deal below it. I am really learning how volatile the trading vehicle can be compared to the tracking vehicle. I do recognize that TradeStation updates this trading vehicle's chart with every Tick, while this tracking vehicle is only updated every 15 seconds. Still this doesn't account for the trading vehicle trading below the support line for an extended period of time.
The frustrating part of this behavior, is that the Money Management Stop for 'BTBT RUT' system happened to be just around the support line* (see note at bottom of post). So when the TF traded down to that support line at around 945 am, the trading vehicle got stopped out. However, the tracking vehicle never traded to that level, so it didn't stop out.
This is a frustrating part of using one vehicle to model a particular market behavior (RUT), and then using another vehicle to trade this behavior (TF). Sometimes the trading vehicle gets stopped out, but the modeled vehicle doesn't. Talk about slippage when the EOD stats are totalled. I recall about 18 months ago, this happened to me. The trading vehicle got stopped out shortly after the open for a 0.50% loss, but the tracking vehicle didn't, and then it went on to post a 2-3% gain. I was so pissed that day.
So after the tracking vehicle got stopped out this am for a 0.50% loss, but the modeled vehicle didn't and then both started to bounce back up, I began to fret that another day like the one from 18 months ago was in the works.
So what did I start doing? Well, I got pissed off some more and started rooting for that damn tracking vehicle to start trading back down! And of course it didn't go down, but continued up for a bit. Then as we all know, the RUT and the rest of the major market indices put in a lower high just before 10 am, and then headed south. The modeled vehicle hit its stop just after 10 am, and I was thrilled!
The lesson here, is I need to recognize that sometimes the trading vehicle is more volatile than the tracking vehicle, especially as it relates to the TF/RUT. When I use real tight stops, like the 0.5% stop for this model, I may want to increase the stop for the trading vehicle a bit, say to perhaps 0.70%. This might help mitigate this volatility related slippage.
I wonder if the opposite has ever worked in my favor? Such that the tracking vehicle got stopped out, but the trading vehicle didn't. I do recall that within the past 6 months or so, a trading position get stopped out (within 15 minutes after a particularly volatile FOMC release) at a much better price than the modeled position did, perhaps by as much as 0.50% I have only recently begun to monitor how much of a difference there is between a position's modeled return and its actual trading return, and have discovered that on average its around 0.15% lower than the modeled return.
*i know, i know, placing a stop at support instead of under it is a recipe for whippage, but the logic of this stop is not based on previous pivots, s/r lines, etc. but rather is based on a specific % below the entry price...in today's case, the stop level and the support line just happened to be essentially the same.
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