I am confused with stop limit order

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I am confused with stop limit order

edited Jan 12, 2017

I thought when short selling a stock, if the current price is <= stop price, the stop limit order should be turned into an limit order, the order won't be filled if the following price jump below the limit price. eg: stoplimit(limit= 25.01, stop= 25.03,amount=-100), if current price hit 25.03, the short selling will ensure the order won't be triggered below 25.01.

If I understand correctly, In backtest

order_target_percent(sid,sids[sid]*factor,style=StopLimitOrder(data.current(sid,'price')*0.998,data.current(sid,'price')*1.005))

should gave a better result compared to

order_target_percent(sid,sids[sid]*factor,style=StopLimitOrder(data.current(sid,'price')*0.998,data.current(sid,'price')))

as the stopprice=data.current(sid,'price')*1.005) is more aggressive . But In my backtest, the 1.005 version actually gave a much worse result.
Edit: a stop price = data.current(sid,'price')*1.1 gave the same result as stop price = data.current(sid,'price') as expected. It fills without looking.
What is going on ??

2 responses

Check my simple backtest. At least The type=4 and type=5 scenario will make a point.

For me,the purpose of stop limit is to guarding the fill price. A natural question is which one is more important, the limit price, or the stop price ?
In my full backtest, the stop price needs to be set 1.003X higher to ensure the order will be triggered.(compare to market order).
Then, the limit price needs to be 0.995X lower to get a similar result compared to market orders. A 0.996X
gave a 3% worse return compared to 0.995X

order_target_percent(sid,sids[sid]*factor,style=StopLimitOrder(data.current(sid,'price')*0.995,data.current(sid,'price')*1.003))

So,How could I chose the parameters, considering the trade off between a better fill and a bad fill but result in more return?

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.