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

Techniques to improve your trading edge

Next, we will look at techniques to improve your trading edge, which is the main focus of this chapter. We will start by considering how we shorten the left tail, and bring the peak of losses closer to breaking even.

Technique 1: The game of two halves: how to cut losers, ride winners, and maintain conviction while improving your trading edge

There is an unwritten rule in every hospital around the world: surgeons should not operate on their own family. There is no such thing as professional detachment when it comes to your own child. In the investment realm, however, fundamental discretionary market participants struggle with the idea of stop losses.

They are consistently asked to defend their convictions, yet expected to be surgical about their losses. They are forced to lose impartiality, but still required to maintain professional detachment. If they want to master the short selling game, discretionary participants will have...