Adrian Reid explains why execution matters for mean-reversion strategies, where profits per trade are tiny. Slippage erases those gains fast, so use market orders only for high-liquidity stocks and limit orders for everything else. For trades at the open, exploit the opening-price match to eliminate slippage entirely.
Now with mean reversion, I've already said that the average profit per trade is very, very small. So you've gotta make sure you don't incur too much slippage. If you're trading super high liquidity stocks or ETFs, this won't matter that much. You can use market orders to enter and exit. But if you're trading anything else, using limit orders is a much better way to do it. And if possible, you wanna participate in the opening price match. If you are placing your orders after hours,. And you know, when the market first opened, the buyers and sellers lined up with their limit orders. They match up at the official opening price and then normal trading commences. What I like to do is get my limit orders, sorry, get my mean reversion trades executed in that opening price match. 'Cause then there's no slippage and I don't miss the opening price. That's for a system that enters at the open. For a system that enters on limits, as in, you know, let's say it's over, the stock's oversold and we place a limit order for the next day further down. So if it keeps keeps selling down, that limit order gets triggered, then there's no slippage for that sort of order because it's a limit order. So using just a straight market order can be a bit of a problem, particularly on lower liquidity stocks. I'd encourage you to think about using limit orders because you'll get much better, much better fills, much better price. You may not get filled every time, but you're not going to get the slippage. It's not going to kill your account.
