Simple Shorting Strategy

About the Author Jeff Swanson

Jeff is the founder of System Trader Success - a website and mission to empowering the retail trader with the proper knowledge and tools to become a profitable trader the world of quantitative/automated trading.

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  • BlueHorseshoe says:

    Hi Jeff,

    Aren’t you being a little dismissive of the performance of this strategy? I think the results here look very good. Where the issue arises is with the infrequency of trading (Van Tharp uses a portmanteau word ‘expectatunity’ to combine expectancy with the opportunity to exercise it). But if I recall correctly Connors is quite explicit about the need to trade the strategies he describes across a portfolio of ETFs, thereby increasing the number of trades and, hopefully, the return.

    An article in which you use the ETF portfolio testing software from the Ivy Portfolio piece to test Connor’s ideas across a group of markets would be very welcome indeed.

    Regards,

    BlueHorseshoe

    • Hello BlueHorseshoe. I have not been spending much time at Trader’s Laboratory lately. Hope all is well with you. I think you may be right. I would like to perform more portfolio testing on this strategy as well as other strategies I write about. The ETF Replay site will not work with this Shorting Strategy as the ability to program is very limited. You basically have a few pre-built methods to backtest. However, TradeStation does have this ability. It’s a relatively new feature and I just need to dedicate some time to learn it. But I think it will be well worth it.

  • Bob says:

    Good work but equity curves with the trade number on the X-axis can be quite misleading as they do not reveal prolonged period of inactivity and identify those periods. It would be better to show the actual dates on the X-axis. For example in a 10 year period, all trades could be in the first year and nothing after that, just to mention an extreme case. Are you willing to trade the system no matter how good the results are?

    • This is a good point and one that I’ve brought up in other articles. When evaluating a trading system you need to be comfortable with the drawdown or sideways periods. The time between equity peaks needs to be examined. For some systems this time may be weeks, months or years! That’s why it’s important that everyone download the strategy, test it, completely understand it, and make their own decisions. For what is acceptable to one person, is unacceptable to another.

  • Mark says:

    I wonder if there isn’t more work to be done in order to further decrease the possibility these results aren’t due to chance. The simple shorting strategy used four consecutive up closes, which is arbitrary. Shouldn’t you look at surrounding values like 2 (?), 3, 5, and 7? I would also think you should optimize the 200-day MA to check the surrounding neighborhood along with the length of the MA used to cover. The real complexity in my mind, then, comes in making sense of all three optimizations and figuring out which values are best (if any). This is the same sort of process you did in the Double 7’s article by varying the 7-day lookback.

    • Mark, there is always more work to be done! LOL. These are good ideas and would be appropriate for another article. Overall I have to balance the size of the article with the information I wish to convey. I try to keep articles around 1000 words since many people are busy. I wish to convey a single key idea per article so it can be quickly digested. Many of these articles are great springboards to inspire individuals to continue the research on their own. Again, you’re ideas are worth testing and I can easily dedicate another article to test these. Thanks!

  • Mark says:

    Good article as always, Jeff!

  • Vince says:

    Is this system on daily basis? (EOD Data).

    Best,
    Vince.

  • Bijan says:

    Hi Jeff,
    In the calculation below, what does Big_Point_Value refer to? How do I get this value?

    Shares = $2,000 per trade / 5 * ATR(20) * Big_Point_Value )

    Thank you
    Bijjan

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