The problem of your account growing, and slippage or execution are becoming an issue is something that everyone will eventually face. Whether you face it on day one or the next few years, eventually, you’ll face it as you grow as a trader. These are the ways to deal with it:
- Increased liquidity filter. So that the stocks you are getting signals in are high liquidity, and you can get trade bigger and bigger positions.
- Trade less frequently. As in longer-term systems, so the slippage burden isn’t as high in your portfolio. If you’re trading positions that you’re holding for one or two days over again, and you’re getting a bit of slippage every time, that compounds a lot of slippages. But if you’ve got a long-term trend following system that trades once every few months, a bit of slippage doesn’t compound as much so you can reduce your frequency.
- Diversify your systems. You take one system that’s got a big allocation, split in two, or don’t do that. You can add another system and scale everything down. That’s probably my favourite one to do, and that’s what I did as I was growing. It’s like, “Okay. Too big. Add another system. And I’m good again. Well, too big. Add another system.” That works well because the extra system gives you diversity, and you get to reduce your size.
- Think about your position sizing. We sometimes optimize our position size for growth, like risking 1% per trade gives you the best compound annual return. But if that’s giving you too much slippage, maybe half a percent risk trade wasn’t much worse. It probably had a smoother equity curve, and its half as big trades. Perhaps dropping to a smaller position size without changing anything else but allowing more trades from the same system with a lower position size will do a lot of what you need as well.