Profiting from Downward movement.

Discussion in 'Strategy Development' started by ehsmama, Sep 23, 2006.

  1. ehsmama


    Please help me find direction on how to develop a set of rules that can be used to develop an automated system that goes short only profitably.

    I can't get over this idea that one can automate a shorting strategy for stocks. Anyone help would be greatly appreciated.
    I have good systems that go long only. But they just sit out a Bear market. I think there has to be a way to to short mechnically....

    Please do help,
  2. I think the "only profitably" qualification is going to limit the possibilities considerably.
  3. ehsmama


    Hi Bearbelly,
    I did not mean short "only profitably". I meant "Short Only" system that is profitable.
  4. Following is the output of a moving average crossover system. Input data is about 10 years of Standard And Poors Index Tracking Stock symbol SPY daily price data.

    Trades are long term. I do not find profitable results when testing shorter term trades using this system. I did not test time constants less than 10 days. Use of shorter time constants might test profitably.

    I do not remember testing this program thoroughly. I show this only as an example of a moving average crossover system that trades short positions only.

    Generally speaking I find much better simulation results trading stocks using long position trades than short position trades.


    FastTimeConstant is 40
    SlowTimeConstant is 100
    ATR_Multiplier set to 10.00
    Name of data file is SPYdaily.txt
    Long or short is: short positions only
    Heat is 10000
    Initial capital is 100000
    Slippage and commission per transaction is 100.00


    12-Jul-94 OHLC:[ 37.05 37.05 37.05 37.05 ] short sale at 37.12 size 3167
    Dollar Position Cost is 117559.04
    22-Jul-94 OHLC:[ 37.49 37.49 37.49 37.49 ] cover 37.55
    Position Net Gain Or Loss is -1362
    Subtotal profit $ -1362

    20-Nov-00 OHLC:[ 123.26 123.26 123.26 123.26 ] short sale at 123.89 size 514
    Dollar Position Cost is 63679.46
    9-Jun-03 OHLC:[ 92.81 92.81 92.81 92.81 ] cover 93.75
    Position Net Gain Or Loss is 15492
    Subtotal profit $ 14130

    Number of trades 2
    Total profit $ 14130
    Profit after subtracting $ 100 commission & slippage per transaction: $ 13730
    InformationRatio is 0.84
    Heat is $ 10000 per trade
    Drawdown is 0.0136
    Initial capital is $ 100000
    Slippage and commission per transaction is $ 100.00
    Uses 20 period average true range to calculate position size
    Trades only short positions.
  5. ess1096


    I don't use automatic systems but I do have a written plan for long and short trades. This is for swing trades, not daytrades.
  6. Sure, there's a long bias on equities.

    But as long as Buy/Hold traders and Mutual Funds have drawdowns, there are opportunity for speculators.
  7. mvalley


    I stopped my short mechnical trading strategies simply because I couldn't get a fill sometimes on the shorts because my broker couldn't borrow the shares.

    So, the backtesting resulted in great performance, but when I implemented it, I missed out on a number of profitable trades due to real world conditions.

    Trading long is much easier IMO.

  8. Get a better broker...
  9. mvalley


    Good advice. I just started using IB, so maybe I'll try the ol' shorting again.