Trend following on the short side

[bashatrader]

Quote from intradaybill:

You right...I just wanted to demonstrate short trend performance. This is how the system has performed 2002 - 2010:

Good work! Is this the system found by Price Action Lab?

 

[HuggieBear]

Quote from NoDoji:

The markets have been in an uptrend for nearly 2 years. Did you test your intermediate/long term mechanical short trend following systems during the decline from October 2007 through March 2009? That would be where an intermediate/longer term short trading system would make sense.

I'm not sure what your definition of intermediate/long term is, though. If it's trading weekly/monthly swings off trend/channels, then short and long strategies should work similarly, with the longs running longer and the shorts (pullbacks in the long term uptrend) running shorter, time-wise.

most of my systems are backtested on between 10 and 30 years of data...average holding period is a few weeks to months for longs. Shorts definitely need to be held for shorter durations.


I am using amibroker for backtesting...

 

[HuggieBear]

Quote from ehsmama:

I think you can try to use 2 things
1. Use a Filter to enter Shorts..so Bull Markets keep your short system mostly on sidelines fo
2. Exit Short when Profit Target hits...Not on pullback
I think short + Long system will always perform better than a Long only system..But combination of 2 is important..Not Just long only or Short only
I think using Tradingblox as a development platform will help you see things in new light
RM

both good ideas i think...how would you build a filter for #1? I do have something in place, but it is less than perfect for sure. Certainly far less adept than eyeballing a chart.

 

[Specterx]

Quote from HuggieBear:

I have spent a couple of years building and trading intermediate and longer term trend following systems. I've developed a few systems mostly focused on equity indexes as well as commodity futures, and I've had pretty good success.


I've spend a tremendous amount of time trying to develop some decent mechanical short trend following systems but haven't been able to come up with much. INtegrating a system that trades short entries would be fantastic for smoothing out my overall equity curve and for reducing volatility, but the techniques i use on the long side don't seem to work very well.


Just curious if anyone has had much success building longer term mechanical systems for shorting either indexes or commodities? I do have one system I am using on the short side in commodity futures. The system is pretty bad when looked at indiividually, but when incorporated into my overall strategy it does tend to reduce volatility a bit and provide a few percent alpha. However, it seems like so much more should be possible...

There are a couple factors at play here IMO, differential market behavior on the downside (check 2008 vs. now) and the influence of overall market trend on individual issues. "Downtrends" often take the form of violent parabolic moves followed by equally violent retraces or extended consolidation, while stocks can remain in relatively slow, steady uptrends for years. Add that indices in general spend much more time in slow grinding ascents than in bona fide downtrends, and this definitely affects the behavior of even relatively weak component stocks.

In a market like the one we have today you just aren't going to get much love on the short side. Certainly there are stocks which are trending down, but you're going to get hit with violent reversals as often as you're going to get much distance to the downside.

My suggestion is to focus on what you mentioned in the last paragraph, a shorting strategy as a means to reduce overall volatility of your portfolio, hedge against those periods where long-only doesn't do so well (2008), with any boost to overall returns being a bonus.

 

[HuggieBear]

Thanks SpecterX, what you are saying is what my research has been confirming. I do have strategies which lower volatility and add 2%-3% return per year, but you would never trade them individually.

The reduction in volatility is pretty significant, however. Drops my MDD over a 30 year period by about 10%, so that is almost worth 10%-20% in extra return, if you ask me...