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

Position Sizing: Money is Made in the Money Management Module

Legendary investors have always emphasized the same thing: risk management is the key to long-term superior returns. Stock picking is sexy, but vastly overrated. Risk management is boring but vastly underappreciated. In execution trader English, where market gurus focus on picking the right ingredients, market wizards concentrate on getting the right recipe.

At the end of the day, the primary determinant of long-term geometric returns is position sizing. The expanding nature of longs does not compel market participants to think about position sizing. After all, one good AAPL can make a basket of rotten apples look good. They can survive despite bad position-sizing algorithms. Short sellers do not have the luxury of logarithmic price declines. In this chapter, we will consider some classic examples of bad position-sizing algorithms. Those are the four horsemen of apocalyptic position sizing.

After we have taken a...