Difference between long and short

[siroki]

Hi,

I'm testing a strategy and I see a major difference in performance between shorts and longs. I was wondering. Are big institutions allowed to short sell a specific pair? Or do they only buy, and then unwind, but not short sell?

I would like to know if there is measurable volume difference between bars that are short-sells and bars that a long-sells. Maybe if the short bars are significantly smaller than long bars, it could tell something about institutional participation in short selling.

Thanks.

[NinjaTrader_Bertrand]

siroki, which instrument and timeframe are you exactly testing here? Is this on bid / ask or last prices? What you could compare certainly is the volume of up bars to the volume of down bars for example. Or in realtime apply our BuySellVolume / Pressure studies -

https://www.ninjatrader.com/support/helpGuides/nt7/power_volume_indicators.htm

[siroki]

I'm backtesting a mean-reversion strategy on 28 forex pairs on an intraday basis. What I'm seeing is that the long side of the strategy has a significant better expectancy than the short side of it. So I was thinking, maybe mean reversion in itself works better on the long side because institutions tend to be more long than short. So maybe by just focusing on the long side your edging yourself with the bigger players.

Also, maybe the total amount of long versus short (retail + institutional combined) it larger on the long side. So when brokers go stophunting, maybe they find more prey on when hunting long-stops then when hunting short-stops. So then the reversion to the mean also works better?

Just some thoughts...

[arbuthnot]

I'd just like to make the point that Forex pairs are completely symmetrical, so it's slightly meaningless (in my opinion) to talk about going long or short (as opposed to going long or short of a stock, which have absolute meanings).

The way the major pairs involving the USD are presented for trading is totally arbitrary, with three having the USD first and four second.

EUR/USD, GBP/USD, AUD/USD, NZD/USD

USD/JPY, USD/CHF, and USD/CAD

These could just as easily been the other way round.

I therefore think that any analysis that tends to show that 'long' or 'short' of many or all currency pairs can only be a statistical fluke.

I'll be happy to be proved wrong.

P.S. I'm really sorry for anyone who got caught in the gigantic move in the Swiss franc last week. Some brokers went under and a big one very nearly did and quite a few traders may have had some very difficult conversations with their brokers.

[koganam]

I'm backtesting a mean-reversion strategy on 28 forex pairs on an intraday basis. What I'm seeing is that the long side of the strategy has a significant better expectancy than the short side of it. So I was thinking, maybe mean reversion in itself works better on the long side because institutions tend to be more long than short. So maybe by just focusing on the long side your edging yourself with the bigger players.

Also, maybe the total amount of long versus short (retail + institutional combined) it larger on the long side. So when brokers go stophunting, maybe they find more prey on when hunting long-stops then when hunting short-stops. So then the reversion to the mean also works better?

Just some thoughts...

Just as arbuthnot says, symmetry, as with all pairs trading, implies that while it is, in technical terms, possible to be long or short the pair, there cannot be an institutional bias, because the reality is that there is a pairwise trade, and hence, de facto and ipso facto, arbitrage.

One can contrast this to stock trading, where Mutual Funds are not allowed to go short, hence the often derisive term "Long-only Fund Managers". Naturally, in the case of stocks, this introduces a long bias into the market, as the Mutual Funds are a large part of the institutional cabal in the markets. This, quite apart from the fact that so many retail punters are also long-only players, because they simply cannot understand how it is possible to sell short, or are scared of the bogeyman that the press makes short-selling out to appear to be.

However, given that pairs are quoted in a standard manner, more or less, we can technically still treat them as (composite, so to speak), equities, in which case we can talk of their direction, long or short. What you are seeing is most likely a seasonal tendency in the various pairs, related more or less to a similar seasonal tendency that seems to have been shown to be present in the currency futures.

You might want to exercise your Google Fu on the whole matter of seasonality in the markets.

[arbuthnot]

You might want to exercise your Google Fu on the whole matter of seasonality in the markets.

Hi Koganam

Your post makes very interesting reading.

I hadn't seen the expression in your last line before, so I tried my Goolge Fu on Goolge Fu ... it took me about ten hours to find it so I guess I don't have any!