In this article, we make a backtest of a specific trading strategy and compare the results by using three different entries:

• Entry at the close the same day;
• Entry at the open the next day, or
• Entry by limit order the next day.

Let’s start:

Entry types

Let’s look at the different options for when and how to enter a position:

1. Entry on the next day open

Depending on when the buy or sell signal is being generated, one can think of different entries.

If the buy signal is generated at the close of the stock market, the most common entry, since it is the best one for part-time traders in terms of “sufficient time to place orders without any coding skills”, is the entry on the next day open.

After the stock market closes for the day, you have enough time to evaluate your new orders with the help of stock screeners, some manual selection methods, Python scripts, or any trading software. You can calculate the position size and, therefore the number of stocks to buy for each company can be done thoroughly without any pressure of time.

2. Entry on same day close

The first option to execute the buy signals is instantaneous with a market-on-close order or with a market order shortly before the stock market closes, e.g. 15 seconds before the closing bell.

• How To Enter And Exit Positions At The Close (Daily Bars And OPG And MOC)

This method requires some coding skills since you need to have trading software that automatically checks for the buy signals, evaluates how many positions there are already open and if there are some free slots to be filled, calculates the position size of each stock depending on the current equity and finally places the order.

All the mentioned steps need to be done within a couple of seconds. Moreover, you have to have a reliable system that executes your piece of software, for example, a cloud server or a server at home. For both entry methodologies which have been introduced, you can be sure that your orders get filled.

3. Entry next day with limit order

A third entry technique is trying to enter the trade, anticipating another short sell off. E.g., if the buy signal was generated on a Tuesday, we set limit orders for Wednesday a little bit below the closing price of Tuesday.

Again this requires some coding skills, not for the actual placement of the orders, but for the backtest itself. It has to be assured that no more positions will be opened as planned if the orders get filled. Usually, you set a limit between 5 and 15 positions simultaneously, depending on your risk profile.

Another drawback of this entry technique is that your live trading results can differ greatly since you try to enter with limit orders. There’s no guarantee that your limit orders get filled in live trading since it depends highly on liquidity.

The most important drawback with this type of entry, although we are backtesting very liquid stocks and quality data from Norgate, the backtest might overestimate (compared to live trading) the results based on two things:

• Our limit level might be part of “bad quote”, even though we have used Norgate
• Our limit level might have just a few shares traded, and we get a partial fill or nothing at all, even though this is very liquid S&P 500 stocks

The trading strategy explained

In the following, we do not want to focus on the strategy too much but on comparing the three mentioned entry types. Therefore the strategy is super simple and can be summarized as follows:

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