Posted By: H   Date: Sat Jun 5, 2010

Title: Model doesn't like shorting?

Message:
  Hi
 
  I am starting to notice that for some reason the model doesn't to go in short mode. The market recently dropped a full 10%, which by historical standards is a huge drop, yet during that time the model was either only long or cash, which is very surprising . Do you think more model tweaks are in order?
 
  Thx
 

Response:
  The model was short yesterday when the market dropped more than three percent.

  It is true that the model does not like to go short. It was short just three days in the last 165. This is a risk adverse model and being wrong in a short position can lead to significant losses. I would say that when we get a strong short signal, the probability is fairly high that a short trading position will be profitable.