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money management for shorts
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money management for shorts

  #1 (permalink)
New York NY USA
 
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money management for shorts

I trade equities; mostly stocks and some ETFS. High volume major companies that trend well and usually have a high institutional percentage. I follow a solid trend following mostly Elliott based technique. I did pretty well last year.

This year I will likely be short more often than long. That's what the the charts say. I am short now.

My question is how much of my portfolio should I be willing to commit on the short side.

I never buy (or sell) more than my actual cash. I only use margin to be able to short. And to be able to trade without waiting for settlement.

Stocks fluctuate. I am curious what money management theory is for trading on the short side. If there is any. I can't imagine its safe to be 100% invested on the short side. (Which I am not)

Thanks for any advice and information.

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  #2 (permalink)
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  #3 (permalink)
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I am going to take the lack of replies to mean money management is essentially the same whether you are long or short.
And that there are no special considerations on the short side. I can except that; with a few caveats.

There is a saying that stocks take the escalator up and the elevator down. Meaning your time analysis on the short is not symmetrical to long trades. It may not be wise to hang out to long in a short. The other issue for me is that on the long side I rarely use stops. They are really not necessary on the long side for the kinds of stocks i trade. On shorts I think having some sort of stop in necessary. Maybe something at the Chandlier exit. Which are fairly wide, but provide some measure of safety.

Other than that I think trade and money management will be essentially the same. I am only recently looking at shorts and wanted a view on how those trades were different. I am concluding that they are not. So that is an answer.
Cheers

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  #4 (permalink)
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for shorting equity futures the best way is scalping .that trading on momentum using the technical aspect,mainly using volume.The little time you spend in the market the little exposure to volatality risk. If the right enty you make at right time in equity futures,it will reward you with reasonable profit in minimum time frame.

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  #5 (permalink)
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mcteague View Post
I trade equities; mostly stocks and some ETFS. High volume major companies that trend well and usually have a high institutional percentage. I follow a solid trend following mostly Elliott based technique. I did pretty well last year.

This year I will likely be short more often than long. That's what the the charts say. I am short now.

My question is how much of my portfolio should I be willing to commit on the short side.

I never buy (or sell) more than my actual cash. I only use margin to be able to short. And to be able to trade without waiting for settlement.

Stocks fluctuate. I am curious what money management theory is for trading on the short side. If there is any. I can't imagine its safe to be 100% invested on the short side. (Which I am not)

Thanks for any advice and information.

I never liked the idea of shorting stocks. For alot of reasons. BUT I would sometimes buy puts on stocks if it looked to be going down. This puts you in a good position to take advantage of volatility with a cap on risk. BUT I had to be damned sure that the stock was going down because those option guys will eat your guts out.

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  #6 (permalink)
Legendary Market Wizard
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Salao View Post
I never liked the idea of shorting stocks. For alot of reasons. BUT I would sometimes buy puts on stocks if it looked to be going down. This puts you in a good position to take advantage of volatility with a cap on risk. BUT I had to be damned sure that the stock was going down because those option guys will eat your guts out.

Shorting stocks and holding overnight is a tricky thing. Going long limits your risk to zero but going short has unlimited risk cause the upside is infinite.

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  #7 (permalink)
Market Wizard
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I recommend that new traders trade the short side.

It is less likely that you will rationalize turning a trade into an investment, less likely to give a losing trade a little more room and much more likely to take your stops when short.

When you talk you are only repeating what you already know. When you listen you might learn something new
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  #8 (permalink)
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There is the concept of a long/short portfolio.
https://en.wikipedia.org/wiki/Long/short_equity

Basically to have a certain % of the portfolio short to try to smooth out the overall volatility of the portfolio.

This has been a bit out of fashion with the bull market we have been in.

Much money management depends on what you are doing.

If you are basically just running one strategy that is placing one bet at a time there won't be any difference between long or short. The expectancy of the trade essentially will dictate the fraction to bet.

If you are getting 2 : 1 on your bet with a 50% win probability you would never want to bet over 25% of the bankroll.
3:1 is 33% though and 1.1 to 1 is only 5%
There are kelly calculators you can play with to at least know what to never bet over with and get a feel for the function. Of course trades are not independent and identically distributed random variables so we can never know our true win rate or odds and need quite a bit of cushion in practice.

People usually lose their minds on trading boards when kelly betting comes up but don't forget that
"all models are wrong, some are useful".

This becomes more complicated if you have two bets or more on at a time because then you have to take into consideration the correlation between the bets.


Last edited by centaurer; January 28th, 2019 at 07:06 PM.
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