Tuesday, March 18, 2014

Why EzBacktest doesn't simulate short positions?

Recently I've been asked if EzBacktest supports short positions, by setting minus percentage. The answer is no. My reason for not implementing this feature in the past was as follows:

The software simulates long positions over a long period of time. There are some trading simulations there, but this isn't a trading system testing utility. For that kind of action, traders receive software from their broker that is as complicated and programmable as they need. I viewed as simply impractical to simulate a short position held for a long period of time. Short investors are, as I understand it, mostly traders, and their short positions change every few months (if not days). For the most part this is contrary to what you would do with EzBacktest.

So how does one create a "bear" portfolio for testing bull/bear simulation without shorting? You can use bear ETF-s or mutual funds. I do recognize these usually have bad results, but perhaps that's a result worth viewing and considering before investing in them. Short investing carries costs and risks which can  be much worse than long term investment only portfolios. The same is true for other bear techniques. Bear option techniques, or even "buy insurance" type of option schemes are not simulated here. There are ETF-s which implement these techniques, and you could test them, but again - their real world results are not very appetizing. 

Looking forward to your emails/comments on the subject


No comments:

Post a Comment