Mean Reversion and poor fills
I'm using a mean reversion strategy that looks for stocks with spreads >9c. I have been automatically placing limit orders at bid+1c at the open, and have been getting killed by adverse selection. If the stock moves up, I only get 1/10 of my order, and if the stock moves down, I get the entire order. I did learn that I'm making my time the order is in force too long (2 min) - losers move down in that time span, and will automatically fill my limit order. So if I tighten the TIF to 10 seconds, I probably won't get filled on as many losers.
But there's still a big problem here:
Set limit at bid - only fills on losers
Set limit at ask, or market order - Lose 9-19c per trade (1-4% on stocks from 6-9 dollars!)
So if there's a stock with a large spread, how do you trade it profitably?
