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

The Trading Edge is a Number, and Here is the Formula

In this chapter, we will unveil one of the most well-guarded secrets in the finance industry: behind the curtain is not an old man, but a simple formula. Then, we will decompose this formula into two distinct modules: signal and money management.

Within the signal module, we will explore how to time entries and exits, and the properties of the two strategy types that seem to provide a trading edge; trend following and mean reversion. We will continue this discussion in Chapter 7, Improve Your Trading Edge, before covering the money management module in more depth in Chapter 8, Position Sizing: Money is Made in the Money Management Module.

Along the way, we will cover the following topics:

  • Importing libraries
  • The trading edge formula: arithmetic and geometric gain expectancy
  • A trading edge is not a story
  • Regardless of the asset class, there are only two strategies

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