Book Image

Algorithmic Short Selling with Python

By : Laurent Bernut
Book Image

Algorithmic Short Selling with Python

By: Laurent Bernut

Overview of this book

If you are in the long/short business, learning how to sell short is not a choice. Short selling is the key to raising assets under management. This book will help you demystify and hone the short selling craft, providing Python source code to construct a robust long/short portfolio. It discusses fundamental and advanced trading concepts from the perspective of a veteran short seller. This book will take you on a journey from an idea (“buy bullish stocks, sell bearish ones”) to becoming part of the elite club of long/short hedge fund algorithmic traders. You’ll explore key concepts such as trading psychology, trading edge, regime definition, signal processing, position sizing, risk management, and asset allocation, one obstacle at a time. Along the way, you’ll will discover simple methods to consistently generate investment ideas, and consider variables that impact returns, volatility, and overall attractiveness of returns. By the end of this book, you’ll not only become familiar with some of the most sophisticated concepts in capital markets, but also have Python source code to construct a long/short product that investors are bound to find attractive.
Table of Contents (17 chapters)
14
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15
Index

Avoiding short selling pitfalls

This section is all about applying smart filters to avoid classic short selling pitfalls. Practitioners may hopefully revisit some of those points as they become more familiar with short selling. Most of the points here come from painful experiences.

Liquidity and market impact

Liquidity is the currency of bear markets. If you cannot get out of a position without significant market impact, you do not own anything. It owns you. The way to approach liquidity on the short side is radically different. On the long side, liquidity increases as more investors are drawn to rising prices. Early birds end up selling to a much larger pool of market participants.

On the short side, when investors liquidate their positions, it is a one-way street. After a beating, they don't come back for round two. Nothing captures the emotional journey of long market participants more faithfully than the Kübler-Ross model. Market participants grieve...