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

Let the market regime dictate the best strategy

"When you have eliminated all which is impossible, then whatever remains, however improbable, must be the truth."

– Sir Arthur Conan Doyle

Over the years, I have come to believe that the two primary determinants of performance are position sizing and market regime. Trade too big and you could be out of business. Trade too small and you do not have a business. Secondly, seasoned market participants usually have several strategies to cope with different market types.

The difficulty is which strategy to use when and more importantly when to fade them. This comes down to regime definition. The floor/ceiling method could potentially change the way you trade markets.

There are two types of strategy: mean reversion and trend following. Mean reversion works best in range-bound markets. The price oscillates around a mean in a semi-predictable fashion. Mean reversion strategies perform poorly in...