Adjusting betsize for long vs short

Discussion in 'Strategy Development' started by andrasnm, Dec 6, 2005.

  1. I am in a dilemma. My model works better with out a short position but I loath the idea of missing an eventual meltdown on the short side. Livermore made his famous FU money on the short-side in 1929 after all.
    So I am contemplating an adjusting betsize for my timing model. long 2x versus 1x short units of Rydex.
    Any ideas of the soundness of such a plan.
    Shorting is harder and less profitable yet moves can and will happen that I would just hate to miss....
     
  2. zdreg

    zdreg

    what does FU money mean?
     
  3. Banjo

    Banjo

    Fuck you money, as in he is telling the world to piss off, apparently he hadn't noticed the man behind the curtain yet.
    I don't understand the bias one way or the other, both sides make money, Rydex is not something I trade so not familiar with it's action, maybe it goes up 98% of the time. Mkts fall harder and faster than they rise generally speaking so this is usually easier money and less risk as you are exposed for a shorter time frame because it happens faster. If anything I would double up on the short side. All this assuming you actually know what you're doing and the product behavior patterns well. I have never figured why people don't like the short side, they have to go down in order to go up. Somebody is always going to take the profit they have.
     
  4. yeah i hear that. all my symmetrical system stuff, as with many, is a lot better on the long side this year, but i'm psychologically happiest short and also loathe the idea of missing that shock move we're perpetually waiting for. personally i trade 20-30% larger on the short side, that seems to be where i've equilibriated. behavior on shorts seems past the point of a squeeze, so balance the various forms of pain i suppose
     
  5. There is a well known and systematic long bias in the US stock markets despite the occasional meltdown and bear trends.....
     
  6. Sorry, I hate to state the obvious but there are some who think stocks like futures are symmetrical where they are decidedly not...
    Rydex has bull and bear funds to trade virtually all US indices, short term timingvise...
     
  7. for sure, it's funny how easy it is to ignore it on a day to day basis. you could definitely say it's evident in the long term chart tho
     
  8. Livermore, built that position over a period of months prior to the meltdown happening. He was all in! I don't understand why so many system guys try to construct a model to catch that once in a lifetime event? Yes, you can make thousands of dollars, even more if you are positioned correctly. You can make just as much money trading from the long side and making consistent returns and compounding the profits. It just takes time.

    Another thought, Paul Tudor Jones, when he nailed the crash, saw it coming as well, and as it unfolded, he ran with it.

    The common trait of both traders was that the strategy was a discretionary trade and not systemic.

    That answers the question, trade your strategy systemically to compound profits and build your bank roll, then, when you recognize an event unfolding, you have to get involved and use your discretion to trade the strategy optimally. Plan your strategy ahead of time, rehearse it in your mind, add to your winning position as it unfolds, and capture the monster trade.


    To the original poster, reduce your shorts to maximize your profits.

    That's my strategy!
     
  9. the next question that comes to mind for me is, over what time and event horizon? can it be compared to the price people are willing to pay for insurance .. you make a good point that one could ideally deviate from a strategy at any point if something big is happening. i guess it comes down to how quickly one could reverse or at least net flat, and how shocking the shock (or how hot the leverage or timeframe)

    i suppose high leverage, tight timeframe players' odds are slightly skewed in this regard, particularly counter-trend strategies that juggle the knives

    i largely agree with you. the hypotetical missed long profits from my assymetry this last year have surpassed the likely initial size of a shock move. the illiquid portion of one anyway. my short bias is not necessarily a good idea, just a working solution to the question posed and an incremental way to earn slightly above the max size i'm willing to be long

    still, it sucks not to be completely in tune with what's actually happening most of the time