Hi Nick, I hope all is well given the ongoing situation.
Given the market chaos, I have a new appreciation for hedging, especially for strategies with longer holding periods. I remember reading that you were trying to implement a hedging process in your strategies. Would you or Craig be able to provide some guidance on how one could do this?
I found the following but it doesn’t seem to work with rotational strategies (and is rather complex): https://forum.amibroker.com/t/hedge-long-portfolio-with-short-spy-using-custombacktestprocedure-issue/5260
Practically the challenges seem to be:
1. Integrating the hedging strategy into an AFL, by hedging with only one instrument (i.e. SPY or QQQ) whereas the long part of the strategy uses the tickers in a selected watchlist (it seems this can only be done in CBT?)
2. Position size for the hedging instrument needs to be different than the position size for the long portfolio, assuming the long portfolio is based on more than one position
3. If building and testing the hedging strategy in a separate AFL (i.e. only looking at the short side with the heding instrument SPY or QQQ), one cannot access the equity balance from the long side of the portfolio to properly size the hedge. In real-time one can easily do this however, from a backtesting perspective the two equity balances with evolve different so you can’t really see how the combined portfolio would really perform.
Thanks as always, especially in these markets!
Dustin
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