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My MOC short merges two systems into one but I did that because I had to in order to reach a cagr that made it worth the effort to trade..if I had two great systems it would be good to keep them separate if possible. One way (which probably wont work
) would be to pick a variable and make it a condition in system 1 for the variable to be above X and the same condition in system 2 needs to be below X
eg
above/below MA
rstrength
HV
recent HV/ past HV
HV/ Index HV
Close
ROC
Ideally it wont impact cagr much but will just allow a neat division of trades (yeah..I don’t really believe it either, even as I type it, but sometimes things test out differently)When that fails, another test that may be worth trying is making one system a MRV with very short stale exit (2 or 3 days) ? It would reduce trade replication somewhat and add a bit of diversification at the cost of slightly higher maxDD
2 long short systems combined equity growth each allocated $100,000.
CAGR 52%
maxDD: -14.5%Long side clearly the better performers mainly due to a wider stretch on the short side.
So here’s the system performance using dual signals. The long signals are the exact opposite of the shorts.
Non-compounded CAGR of 15.2% with maxDD of 16%
Hi Nick,
Nice results! Looks fantastic and really supports the idea of the benefits of diversification.
In real life, would you be concerned that some of the best shorts can’t be traded because the stock was unavailable to borrow? I can’t remember who, but one of the group had exactly that happen last week – a big winning short that wasn’t filled due to unavailability?
Or the example you often give of being legally prevented from shorting during the GFC?
To me, this also complicates the reliability/usefulness of back testing results.
The other concern I have with shorting is that when you are long, price can only go to zero, so if you have a $10k position you lose $10K. But when you’re short, price could go to $1,000.000,000,000. I know that this is impossible but take a few zeros off and it seems to me that the likelihood moves from impossible to improbable.
Imagine shorting a stock with a high RSI (or whatever your measure of choice) that stretches higher the next day so your limit is hit. Of course, the reason the RSI is high and the stretch has been met is that people are buying. In this particular instance, there is good reason why people are buying as the company you’ve just shorted announces a cure for epilepsy/Covid19/cancer/erectile disfunction. I would expect that the $100k/$200k I could lose in one day would cause me permanent erectile disfunction.
I understand that this might be paranoia, but just because I’m paranoid doesn’t make me wrong.
I’m really interested in opinions on this, both from those who are shorting and those who aren’t…
Kind regards,
Terry
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