How to deal with bad intraday fill pricesNov 12, 2020
I think everybody understands that prices move around intraday and there can be differences from when the email goes out compared to the end of the day values. However, this past Monday we had a very strange day in the market where the gap between mid-day prices and end of day prices was massive, and it prompted a lot of questions from people. I think it's a good time for a reminder on this subject.
* All VTS strategies officially use end of day prices for the performance reporting.
I send the emails out around 11:30 am eastern time give or take. This means there is a full 4.5 hours of time between the email being sent out and the market close at 4:00 pm eastern time. Due to the fact that people have busy lives, jobs, families, hobbies, it's important that I give people several hours to execute the trades at their convenience.
However, 4.5 hours is enough time that occasionally in fast moving markets, there might be significant differences in the prices from the time of the email to the end of day value that the official portfolio uses. And that does go both ways, sometimes higher, sometimes lower.
Don't worry, it'll all even out in the long run!
- Some days you'll enter your trade at a certain price, only to see that the end of day value is much better. We've all experienced unfortunate fill prices where a different time of day would have been better, and it's very frustrating when it happens. Believe me I get it.
- But there will also be plenty of times that it's the opposite. You enter your trade at what turns out to be one of the better times of day and it helps you.
The problem is investor psychology.
It's just one of those mental things where investors are much more likely to notice the bad fill prices every time it happens, and not very likely to notice all the times you actually got a better fill price.
Negativity and losses stand out in our brains a lot more than benefits and gains do.
It's just a cognitive bias most of us have, so there's a couple things you can do to minimize this sick feeling we get when we notice we got an unfortunate fill price:
1) Accept the randomness. Rationally speaking, and believe me I've also run studies on this, but there's no significant difference between prices at noon vs prices at 4:00 pm. So try to get past this psychological tendency we have of focusing on the bad by just accepting that market prices are a random walk on very short time frames of a few hours. Have confidence that it'll all work out about 50/50 in the long run. Some days you'll do better, and other days you'll do worse, but in the long run it will average out to a wash.
2) Execute trades at the same time every day. If you have a set time that you execute trades and you don't deviate from it unless you have to, then you will condition your mind to just accept the fill prices you are getting and follow the long term process. If the timing is removed and you just have a set window of trade opportunity, then the negativity should be removed.
For me personally, I execute trades at market close. So when I notice that the prices were much better at noon when the emails go out, I don't beat myself up about it. I just accept that it's a random walk and my execution time is end of day, that's it. It doesn't even phase me and I hardly notice because I know that MY TIME is end of day and nothing else matters.
It's your choice:
- You can choose any time of day you want. If you like to do it when you first see the email that's fine. Just execute your trades about noon eastern time every day and just accept that is YOUR TIME and all other prices in the day don't matter. Noon is your window, and that's it and that's all. Trust me, it won't be long before your brain starts to see the randomness of it all.
- Or if you want, you can join me and execute your trades near the end of the day. It won't change the long term performance, like I said it's all going to work out the same in the long run. However, if you do this, one benefit would be that your performance would very closely track the official performance of the strategies because they all use end of day values as well.
But trust me, there's no material difference and any time of day is going to work out the same in the long run. I realize days like this past Monday left some of you who execute trades in the middle of day frustrated, because things changed quite a bit by the end of the day. But there's going to be just as many times that the market careens off a cliff into the close and you count your lucky stars you did it at noon.
It'll all work out 50/50 in the long run :)
2 years ago I made a video on this subject explaining a few reasons why I execute my trades at market close. Given this past Monday's price shenanigans, I definitely think it's worth giving a quick look so check it out:
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