What is Slippage?
Slippage is a situation on the market when a trader obtains a different price on the executed order in comparison to what he expected before the order execution. The primary reason for the slippage to occur during the algorithmic trading can be related to serval factors:
Bid / Ask spread change during the market execution
The delay between the trading signal and the trading exchange
High market volatility.
Delay in response of the exchange API
Why it is important to account for slippage?
The slippage, that will always exist in algo-trading, is an important parameter that should be taken into account when you backtest your strategy, especially if you are trading on the lower timeframes such as 1, 3, 5 minutes, and scalping the markets for the small gains. Backtesting your algorithm with the slippage parameter will provide you with more realistic results and accurate expectations for future trading.
How to Estimate Slippage?
The size of the slippage will vary based on the Market asset, its bid-ask spread, and volatility. Therefore, to construct an accurate backtest the trader should run a small sample of live trades (on a particular asset) and then compare the execution price with the original backtest results for the same period. Calculating the difference in the prices of the live trading and backtest will give you an accurate figure for slippage (on Average) which can be imputed in your backtest.
How To adjust Slippage in Tradingview?
When you add your strategy to the chart, go to the strategy settings and switch to the "Properties" tab.