Slippage Sensitivity Analysis
The slippage sensitivity analysis calculates the erosion of net profit by incrementally increasing the cost per trade. Every teardown orb trading backtest freshcornercafe has logged shows the same thing regarding the impact of friction on an opening range breakout strategy. A slight deviation in execution price can turn a profitable intraday model into a losing one. This process isolates the cost of market friction from the actual signal accuracy of the orb.
The mechanics of execution friction
Testing involves adding a fixed cent value or a percentage to every fill within the simulation. A five minute range signal might appear highly profitable on paper, but the actual fills often occur away from the theoretical price. The analysis compares the raw performance against a version where each entry and exit incurs an extra penalty. This reveals the true breaking point of the system. High frequency trades within the first fifteen minutes of the session are particularly sensitive to these adjustments. Small errors in the model compound quickly when the number of trades is high.
Impact on total profitability
The math shows a non linear decay in returns. A model targeting the thirty minute range might withstand a one cent slippage increase, but a three cent increase could wipe out the entire equity curve. The data tracks how much padding exists between the gross profit and the break even point. If the edge is thin, the strategy fails under even minor market volatility. The analysis proves that a high win rate does not guarantee success if the cost per trade exceeds the average profit per trade. Many setups look strong until the cost of movement is factored in.
Drawdown and equity curve stability
Slippage does not just lower the total profit. It increases the depth of every drawdown. A strategy that operates during the cash open often faces wider spreads. This volatility increases the likelihood of hitting stop loss orders prematurely. The analysis measures the increase in maximum drawdown as the cost per trade rises. A simulation that shows smooth growth at zero slippage often shows jagged, deep losses once the friction is applied. The relationship between slippage and equity volatility is direct and measurable.
Timeframe sensitivity and liquidity
The choice of timeframe changes the friction profile. A 60 minute range provides fewer signals and thus less cumulative cost. Conversely, a 5 minute approach generates more trades, which accumulates more cost. The analysis compares these different scales to find the optimal balance. A strategy that relies on the first hour of trading must account for the fact that liquidity fluctuates. Lower liquidity during certain parts of the regular trading hours leads to higher slippage. The math identifies the specific cost threshold where a strategy ceases to be viable.