Short Selling in Trading

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There is no admission criterion. You are recommended to go through the prerequisites section and be aware of skill sets gained and required to learn most from the course.

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Some of the course material is downloadable such as Python notebooks with strategy codes. We also guide you how to use these codes on your own system to practice further.

We focus on teaching these quantitative and machine learning techniques and how learners can use them for developing their own strategies. You may or may not be able to directly use them in your own system. Please do note that we are not advising or offering any trading/investment services. The strategies are used for learning & understanding purposes and we don't take any responsibility for the performance or any profit or losses that using these techniques results in.

Quantra environment is a zero-installation solution to get beginners to start off with coding in Python. While learning you won't have to download or install anything! However, if you wish to later implement the learning on your system, you can definitely do that. All the notebooks in the Quantra portal are available for download at the end of each course and they can be run in the local system just the same as they run in the portal. The user can modify/tweak/rework all such code files as per his need. We encourage you to implement different concepts learnt from different learning tracks into your trading strategy to make it more suited to the real-world scenario.

No. We provide you guidance on how to create strategy using different techniques and indicators, but no strategy is plug and play. A lot of effort is required to backtest any strategy, after which we fine-tune the strategy parameters and see the performance on paper trading before we finally implement the live execution of trades.

You can learn with or without coding knowledge. If you would like to do the analysis on excel, we would suggest you to start with course on Statistical Arbitrage in Trading. You can create and test your trading strategies using excel.

Alternatively, you can do the course on Python for Trading which will help you gain knowledge in all these fields: Python, Analysis and Financial markets.

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Short sellers bet on the prices of a stock going down, and they take the risk of buying the stock back for a lesser price at a later time. Short selling is considered risky and usually done by traders with a lot of experience in trading.

In short selling, money is made by buying back the stock at a lower price than the one at which it was sold. Normally to perform short selling a trader would be required to have a special brokerage account with the broker where he can borrow the necessary stocks.

Let's consider the recent activity on the stocks of GE. Shorting the stock of GE before the actual fall that happened in its price is a good example. There were many clear indicators for the absolute fall in prices before it actually happened.

The trader would have to buy the stock back from the market, even if it is at a higher price (thus incurring a loss), and then return it to the broker. If the stock price goes up a lot then the broker might be forced to liquidate the trader’s position.

Regime is a decisive shift in the momentum of the market. It happens when the stock price experiences a shift in the price momentum. Usually, the past one year or one-quarter prices are used to check for the past momentum.

It will help you in classifying the stocks in different categories, and apply the trading strategies accordingly. A regime definition should ideally have clear demarcation or classification criterion to separate the short and long stocks.

Long short portfolio involves buying stocks where the exposure is positive or long and selling stocks where the net exposure is equally negative or short. The net count of stocks in long and short categories may vary but they are usually maintained in equal numbers to reduce the sector-wise risk.

Stocks are required to balance positive or long exposure in the market. If your exposure to a certain market is completely positive, that is, if you have only bought and held stock in your portfolio then you would lose money when the index goes down. By using a long short approach you can reduce the market risk.

There are three main regimes

1. Crossover
2. Breakout
3. Floor and Ceiling

The different regimes can be compared by checking the drawdowns and profits of each of the regime models along with other predefined metrics of the different return distributions. Comparing different regimes will help you understand which regimes work best in a given situation.

We classify the stocks based on the regime and then optimize the weight or capital allocations based on different portfolio management techniques. This helps create a long-short strategy.

If the regime is positive for a stock then it can be classified as an outperformer and if the regime is negative then it can be classified as an underperformer. Each regime has its own pros and cons. Knowing each of them is absolutely vital for understanding when to implement them.

You can optimize a long-short model by optimizing the weight or capital allocations along with the entry and exit criterion for each of the regimes. You can also regulate the stop loss and profit taking criterion to further enhance the profitability.

While selling short, position sizing should be done in such a way that the net weight or capital allocation in both long and short stocks would be the same. If you are only short selling, then the past performance of the regime should be taken into account while deciding the position size.