# Long only/short only model questions



## sinner (17 August 2011)

Hi guys,

I've been developing a few new models recently. Last night I was working on a relatively simple trend following type strategy and testing it on the 1-hour EURUSD intraday data.

What I discovered was that from 2007-current, the model run as "long only", the equity curve printed elegantly, code ran robustly and very profitably (at 2% risk per trade it returns 380%), trading 24 hours a day.

When I included short sales in the same (but inverted) setup, the result was pretty dismal. Still profitable, but short sales were a net loss (at 2% risk per trade it only returns 150%).

I tested a few concepts out at this point, and discovered the system could be returned to profitability only by modifying the exit condition for short sales so that they were much longer term (total long and short at 2% risk per trade return 580%) - or simply not shorting at all.

Basically, the original setup calls for a relatively tight trailing stop that seems to be highly effective for longs. However the setup on the short side only seems to work with a much much much looser trailing stop. This then completely changes the stats of the system from a relatively high winrate/low DD system to one which can take a 46% modelled drawdown and 16 consecutive losses in a row. Using the loose trailing stops for longs is *not* effective.

Now, I am not losing sleep over this models behaviour, I have written code which can already successfully capture both long and short intraday trends in the EURUSD 1-hour. 

But this result surprised me, especially considering there have been some legendary intraday downmoves in the EURUSD since 2007! So I thought I would come here and poke the brains of ASF systems traders to hear their opinions.

Can the system be reconfigured so that the exit condition for both long and short is the same and remain profitable? Or is this just a long only system? If so, can you explain how that works on an instrument like EURUSD which is theoretically a pairs trade and therefore theoretically just as shortable as longable?

Discussion appreciated.


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## tech/a (17 August 2011)

Sinner

Something I came up against in stocks many years ago.

It became apparent that simply reversing the long conditions to go short gave the result you have experienced.

I found that Long and Short were different animals which required different conditions.
Basically seperate systems within a system.
There were times where a short position was taken before the long had closed and Vice versa.

Id be intetrested in how you go.


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## sinner (17 August 2011)

tech/a said:


> Sinner
> 
> Something I came up against in stocks many years ago.
> 
> ...




Hi tech,

Thanks for your reply. I have definitely read your posts on "long only" from the past. However my experience (being in forex rather than equities) held slightly different until now. My setups for longs generally worked just as well as for shorts. This is the first time I've come against this difference.

The testing showed that the setup for shorts was functional, you basically just had to keep at it until one of the shorts stuck and then hold it for as long as possible instead of getting out at an apparent end of short-term trend like on the long side. This does work and adds significant profitability to the system.

When I get home tonight to my backtesting station I will try and post some equity curves to show what I mean.


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## Tanaka (17 August 2011)

tech/a said:


> I found that Long and Short were different animals which required different conditions.
> Basically seperate systems within a system.




I'll second that :iagree:

After spending 100s of hours in front of TradeSim I found out the hard way, pulled up many profitable long systems reversed them and picked a bear year that looked like the inverse of the profitable bull years and no profit 

Good Luck with your testing!


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## sinner (17 August 2011)

Tanaka said:


> I'll second that :iagree:
> 
> After spending 100s of hours in front of TradeSim I found out the hard way, pulled up many profitable long systems reversed them and picked a bear year that looked like the inverse of the profitable bull years and no profit
> 
> Good Luck with your testing!




Again, this is the equity space I am assuming Tanaka?

tech, when you are trading index futures do you have a different system for longs than shorts? (I don't think so).


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## tech/a (17 August 2011)

Short term
I swing trade using exhaustion as the precursor.
For longer positions I use longer timeframes.
I guess its similar but its also different---thats why its discretionary.


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## sinner (17 August 2011)

Ok here are the backtests for the model in question above. Parameters run 2007-2011.05.30, 2% of free balance (i.e. not total balance) risked per trade, $10,000 starting balance.

Short only, model stop:



Short only, very loose stop:



Long only, model stop:



Longs using model stop+Shorts using very loose stop:



The backtests have actually been run using 1 minute ECN data provided by Pepperstone, but since the results were identical to bar close data, I have used that in these tests for speed. Will post backtest results from my other models that have no problems doing the same setup long/short (note, this doesn't necessarily mean stop and reverse!) in the same time period/same risk settings.


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## sinner (17 August 2011)

Here is a model running on the same parameters, 1h EURUSD, 2% of free balance risked per trade, 10000 starting balance.

It trades the same setup both long and short, the exit method is the same for both long and short.

Like the model above, it doesn't trade stop and reverse, but the algorithm is a more complex trend follower. More of a refined breakout style entry.

Again, this has been tested on 1min data, I just ran it on the bar close method for speed since the results seem identical.




So how come this system which trades live, works fine long/short, but the other one doesn't?


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