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

Higher highs/higher lows

This is another popular method. Stocks that trend up make higher highs and higher lows. Conversely, stocks trending down make lower lows and lower highs in that order, and therefore suggest sustained weakness. This method makes intuitive sense. Unfortunately, it is not statistically as robust as it looks. Markets sometimes print lower/higher lows/highs that throw calculations off, before resuming their journey. Secondly, this method requires three conditions to be simultaneously met:

  1. A lower low.
  2. A lower high.
  3. Both lower low and lower high conditions must be met sequentially, which only works in orderly markets.

Those three conditions have to be met consecutively in that precise order for the regime to turn bearish. Markets are random and noisier than people generally assume.

The main advantage of this method are entries and exits. On the long side, buy long on a low and exit on a high. On the short side, sell short on a...