The simple way to reduce slippage and the tradeoff you face
In this video Adrian Reid warns that attempting large trades in low‑liquidity stocks inevitably leads to slippage, which can erode a trading system’s performance. He proposes a straightforward mitigation technique: raise the minimum average daily turnover (liquidity) filter for the stocks you trade. By moving the liquidity requirement from, for example, $500 K to $1 M, $2 M, or $5 M you gain more control over execution, but the higher filter also reduces the pool of tradable securities and therefore expected returns. Conversely, a low liquidity filter yields higher slippage and unpredictable return degradation. Reid notes that once an account reaches a certain size, slippage becomes less of a concern, but for smaller accounts trying to move $100 K in penny stocks the problem is severe. He concludes with two practical options: trade dramatically smaller position sizes or shift to far more liquid tickers. The video ends with a call to like the video for future tips.
