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

Summary

In this chapter, we did not have a polite conversation about risk. We explored risk metrics that will unapologetically assess your ability to live to trade another day. We considered the Grit Index, which integrates drawdowns (magnitude, frequency, and duration). Then, we introduced the common sense ratio, which recaptures risk specific to both trend-following and mean reversion strategies. Finally, we looked at the system quality number ratio, before combining all three into a combined robustness score, which helps assess risk by combining trading frequency and trading edge.

In Part II, The Outer Game: Developing a Robust Trading Edge, we looked at how to generate ideas on the short side. We then looked at what the trading edge exactly is and how to boost it. We came up with an innovative equity trading algorithm. Finally, we looked at risk metrics that really measure robustness.

Now that we have plenty of ideas on both sides, and know how to size and prioritize them...