Executing Daily-Close Signals in the Next Trading Session
Summary
A model that uses daily closing prices produces a signal only after that session’s close, so it cannot trade on information that was not yet available during the same day. The document outlines practical execution choices: seek after-hours trading, submit an order for the next opening auction, trade during the next session, or use the next closing auction. The latter two auction choices are relatively straightforward to approximate with daily open and close data.
For continuous-session execution, intraday data or representative VWAP or TWAP prices can help model fills. Regardless of execution time, backtests should account for market impact, especially because an order can affect auction prices. A separate response notes that live trading systems send orders through a broker’s API after generating signals. These are high-level implementation options rather than a complete trading system design; the document does not compare their costs or provide empirical execution results.
Key ideas
- A closing-price signal can only be acted on after that close.
- Possible execution points include the next opening auction, continuous session, or closing auction.
- Daily open and close data can approximate auction execution, but not its market impact by itself.
- Intraday data or VWAP and TWAP prices can support simulations of continuous-session trading.
- A live strategy can submit orders through a broker API after generating a signal.
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Full text
# Live trading strategies developed on daily data # Live trading strategies developed on daily data 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 by Chris Taylor (score 2, accepted) https://quant.stackexchange.com/a/49733 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. ## Answer by Theodore (score 0) https://quant.stackexchange.com/a/49728 You need an API to interface with a broker (which interfaces to exchanges). You will have your strategy running, using data from the API, and ultimately the part of your code involved in signal generation will send an API request (in the form of, e.g., “buy 100 shares of AAPL”). The IB API is quite popular, I would suggest looking through the documentation (irrespective of whether you plan on using them; it will be useful for understanding how this works at a high level).
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