Algorithmic Execution: Stop Giving Away Free Money

💡 The Aha Moment

Execution IS edge. Save 0.1% per trade → 10% annually on 100 trades → Compounds to 60%+ over 5 years. Most traders focus on setups. Winners focus on execution.

🎯 Before vs. After: Execution Optimization Results

Result: By switching to limit orders, avoiding the first 15 minutes, and scaling entries, Sarah saved an average of $11,441 per quarter compared to her Q1 execution costs. Over 3 quarters (Q2-Q4), that's $34,323 in additional profit from better execution alone—with zero changes to her actual trading strategy!

🏆 The Bottom Line: Execution is Edge

Starting Capital: $85,000 (January 1, 2024)
Ending Capital: $244,153 (December 31, 2024)
Total Return: +$159,153 (+187.2% full year)
Execution Optimization Value: +$34,324 saved in Q2-Q4

What if Sarah had continued Q1 execution all year?

• Expected returns (journal): $181,777
• Projected execution cost at Q1 rate: -$56,948
• Projected actual returns: $124,829 (+146.9%)
• Actual with optimization: $159,153 (+187.2%)
• Execution value: +$34,324 (27.5% boost to returns!)

The lesson? Sarah had a profitable strategy all along, but poor execution was destroying 33% of her potential returns. By spending 2 hours learning about limit orders, scaling entries, and timing optimization, she added $34,324 to her annual profit—a 27.5% boost with ZERO changes to her actual trading decisions. That's a $17,162/hour rate of return for learning execution basics.

Sarah's advice to other traders: "Track your slippage for 20 trades. Calculate the annual cost. Then ask yourself: Is saving 0.2% per trade worth 2 hours of learning? For me, it was the most profitable 2 hours of 2024."

🎯 Practice Exercise: Optimize Execution Timing and Reduce Slippage

Objective: Quantify your current execution costs and implement strategies to reduce slippage by 30-50%.

Part 1: Slippage Audit (Last 20 Trades)

Calculate your effective slippage for recent trades:

Summary:
Average Slippage per Trade: ____%
Total Slippage Cost (20 trades): $______
Annualized Cost (100 trades): $______

Worst Offenders (identify patterns):
- Trades during 9:30-9:45 AM: Avg slippage ____%
- Trades during 3:45-4:00 PM: Avg slippage ____%
- Market orders: Avg slippage ____%
- Limit orders: Avg slippage ____%

Part 2: Market Order vs Limit Order A/B Test

For next 10 trades, alternate between market and limit orders. Compare execution quality:

Trade 1 (Market Order):
Signal: Long at $520.00 (mid price)
Fill: $520.25 (slippage: +$0.25 / +0.05%)

Trade 2 (Limit Order at bid/ask):
Signal: Long at $520.00 (mid price)
Limit: $520.10 (at ask)
Fill: $520.10 (slippage: +$0.10 / +0.02%)

[Repeat for 10 trades]

Results:
Market Orders (5 trades): Avg slippage ____%
Limit Orders (5 trades): Avg slippage ____%
Savings with Limits: ____% per trade

Part 3: Scaling In Strategy Implementation

Instead of entering full position at once, split into 2-3 tranches. Test on 5 trades:

Example Setup:
Signal: Long SPY, target position 100 shares
Strategy: Scale in 50 / 30 / 20 shares

Entry 1: 50 shares at $520.10 (immediate)
Entry 2: 30 shares at $519.90 (dip, limit order)
Entry 3: 20 shares at $519.70 (deeper dip, limit order)

Average Price: $519.98 (vs $520.10 all-at-once)
Savings: $0.12/share = $12 on 100 shares (0.023%)

YOUR SCALED ENTRIES (track 5 trades):
Trade 1:
Tranche 1: ___ shares @ $_____
Tranche 2: ___ shares @ $_____
Tranche 3: ___ shares @ $_____
Average Price: $_____
vs Immediate Fill: $_____ (savings: $___/share)

Success Rate: ___ / 5 trades filled completely

Part 4: High-Slippage Time Windows Analysis

Track spreads and slippage during different times of day:

Execution Rule: Avoid first and last 15 minutes unless setup is exceptional. Your slippage cost will drop 30-40% just from this timing filter.

Part 5: Advanced Order Types Experiment

Test stop-limit orders instead of stop-market orders (avoid cascading stop losses):

Scenario: Long SPY at $520, stop at $518

Old Way (Stop-Market):
Stop triggers at $518.00
Fills at $517.60 (slipped -$0.40 in cascade)

New Way (Stop-Limit):
Stop triggers at $518.00
Limit at $517.80 (max acceptable)
Fills at $517.85 (slippage -$0.15 only)
Savings: $0.25/share

Test on 5 stop-outs:
Stop 1: Market fill $_____ vs Limit fill $_____ (savings: $___)
[repeat]

Average Savings per Example stop: $_____/share

Implementation Goal: Implement these execution improvements over 30 days. Track slippage before/after. Example target: Reduce slippage by 30-50%. On 100 trades/year, this adds 3-5% to annual returns. Execution is edge—now you're capturing it instead of bleeding it.