I developed a trading strategy using historical Nifty 100 stocks Equity data. The strategy used several indicators requiring OHLC values. The strategy had a Sharpe of 3 + in backtests. Once I started implementing it in Futures it was underperforming, so to double check I obtained futures data for 1 year and the Sharpe was significantly lower, close to 1.8 . The model, however, was showing expected returns on Equity. The problem is during my backtests I considered that transaction cost I would face in futures, which is lower. The strategy is not effective with higher transaction cost that we face in Equities.
Transaction cost assumed one way: Brokerage for futures(0.01%, taken from Zerodha brokerage calculator for 1 lot) + Slippage for 1 lot(assumption, 0.025%) = 0.035%. Is this too low? Is this a common phenomenon that strategies developed on Equity data underperform in futures. If so, what would be a good rule of thumb for underperformance? DATA for backtesting : If the strategies backtested on equities underperform in futures, then it would be better to backtest them on futures. Unfortunately its very tricky to get historical futures data. Kite historical also provides just 1 month of past data at intraday level.
