This is a very simple perhaps naive question. Let's say I have a stock price prediction model trained on daily closing prices of that stock. So when I use this model for live trading, I'll have trading signals only at market close. How'd I put in an order and trade?
I see a lot of strategy research articles on the internet, and quite a few of them backtested their strategy on daily data, but I never understood how such strategies are implemented live.
Answer
If your signals only become available at market close, you obviously can't execute them in that day's trading session. You have a few options -
- Try to execute your trades out of market hours with a willing broker (probably a bad idea, you almost certainly won't get good prices)
- Trade in the opening auction the next day.
- Trade in the next day's continuous trading session.
- Trade in the closing auction the next day.
Options 2. and 4. are the easiest to simulate using daily stock price data, since you typically have both opening and closing prices. However, you should remember that the fact that you are trading in the opening/closing auction will move the auction price, so you should simulate market impact.
Option 3 can be simulated if you have access to intraday stock price data, or if you can find a source of VWAP or TWAP prices. You should still simulate market impact though.
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