Len’s Journal

[Nick Radge]

Thanks Len.

Quote:

Also Cesar and one other trader said they have a lot of success with mean reversion systems that sell short even in an uptrending market.

Seems an odd statement. He has made it quite clear on several occasions that he doesn’t trade the short side.

[LEONARDZIR]

Nick,
I was surprised as well. In addition to Cesar there was another fulltime trader who said one of his core strategies was short trading mean reversion. He said he was up 4% so far this year.
Incidentally I did mention that I learned my amibroker coding and system development skills from you.

[Nick Radge]

Thanks Len. Appreciate that.

I should really do a lot more research on short side trades. It’s been a long time, and whilst it wasn’t fruitful back then, perhaps a fresh set of eyes may be beneficial.

Perhaps I should start a new thread specific to short side mean reversion systems…?

[LEONARDZIR]

Nick,
Any chance you could communicate with Cesar and see if you could get more details about the shortside? A separate thread would be really useful

[LEONARDZIR]

I have a coding question.

I run the following on my MR on the R1000:
Cond5 = OptFilt AND IndexUp AND LLV(V,5) >50000 AND NorgateIndexConstituentTimeSeries(“$RUI”)

I want to run my MR on a custom watchlist so I simply deleted the NorgateIndexConstituentTimeSeries(“$RUI”) and ran the watchlist but I don’;t think that is correct. If I now run my MR on the R1000 with the Norgateindex Constituent phrase deleted the results show a higher CAR and DD than if I run the R1000 with the Norgateindexconstituent phrase in place.

Do I have to name the watchlist in some manner in my conditions?

[Stephen James]

NorgateIndexConstituentTimeSeries(“$RUI”) ensures that the symbol was a member of that index at the time of the setup signal, thus eliminating survivorship bias.
That will be the case regardless of the watchlist being tested so the idea is to match them both up, so in regard to a custom watchlist it depends on your list constituents, testing goals and which index you want symbols to be a member of.

[LEONARDZIR]

Thank you Craig. My custom watchlist is quite large and contains symbols across multiple indices.

[Nick Radge]

Just chatted with Cesar. Here’s what he said (and read the comments below as well):

I have traded short strategies for over decade. They are the toughest strategies psychologically to trade but the results tend also to be the best. I have a couple articles written on shorting. Here is one of them https://alvarezquanttrading.com/blog/the-issues-with-back-testing-a-short-stock-strategy/

[LEONARDZIR]

Nick,
Interesting article. Sounds the alarm bells about going short. Yet he did say it was still one of his current strategies. Doesn’t sound like anything I would be interested in.
What are your thoughts?

[Nick Radge]

One of the things I’ve always maintained was that borrowing can be an issue, especially during times when its most needed, i.e. 2008. He cites an example, but here in Australia short selling was completely banned during the GFC.

Since then many stock lenders have been shut down or stopped offering the service. I would be interested to see if IB offer it to Australian clients (they eased offering margin so I can’t see stock lending as being feasible). Obviously not applicable to you, although from memory banking stocks couldn’t be shorted during the GFC?

And I would think the safest trade is some kind of MOC strategy where large o/night gaps are eliminated. Some of the prop guys I know trade short side on news, especially earnings. They look at a bad release as a precursor to a trend day (open on highs, close on lows) and jump on board.

[LEONARDZIR]

Nick
Thanks for your thoughts. An MOC short sounds worth testing.

[TimothyStrickland]

Nick,

I would love a new thread on shorting a MR. I played around with the short side a bit but I quickly found out that it was harder to make work, that and the comments let me focus on the long side first.

[LEONARDZIR]

Feb 2019

MOC + 3.64
MR + 3.34

Nasdaq aggressive, SP500 rotation flat.

[LEONARDZIR]

March 2019

MOC +2.5%
MR – 0.6
US momo + 3.9%
DTVI + 4.67%

[LEONARDZIR]

April 2019

USmomo + 4.1%
DTVI + 3.92%
US MOC – 0.8%

Couple of points. Did extended mentoring with Nick who helped me spruce up my USmomo system. Much thanks to Nick

Screwed up trading my MR system. Developed a very volatile USmr system with high CAR and high MDD. In retrospect didn’t really believe the backtests and started trading with too much money. When it went downn over 6%in one day my amygdala kicked in and I bailed. Of course it went back to breakeven after the next 3-4 days. Now trading it with less money and I am more comfortable with it.

[Author]

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