Trade Execution

We will be using Chebyshev’s Theorem to set limits on trades. This is appropriate because financial returns (and prices) are not normally distributed but the distribution is generally assumed to have a mean and standard deviation. Find the volume-weighted average prices (VWAP) from no more than one month in the past. For buys, calculate two standard deviations below the last VWAP price to use as the limit. This will balance price improvement with our goal of execution within a week. Use the same guide for sell limit orders. Add two standard deviations to the last VWAP to get the limit sell price which is likely to be executed within a week.