How I Use PowerRatings to Play the Short Side of the Market
There is a lot of talk about an
upcoming downturn in the market. Will it happen? Unfortunately, I
don’t know the answer. But, because of this concern, I have received several
emails asking how I would “deal†with a down-trending market. The truth is that
I continue to trade the same way, with good risk control, appropriate position
sizing, and yes…still trading almost universally to the long side.
I do not try to predict which direction the market will go. I
try to find where I have a statistical edge, then I use appropriate risk control
by looking at position sizing based on stock volatility. Simple. Most of the
data shows that there is a persistent edge to the long side (0.04% per day in
the S&P500). Additionally, just about any system that I have either purchased
and studied, or that I have worked on myself has always shown better results by
trading just to the long side trade versus trading to the short side…
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