Carrying on from the last post which outlined an intra-day mean reversion stock trading strategy, I just wanted to expand on that by adapting the backtest to allow short selling too. So as well as buying stocks that have gapped down, we will be allowing the strategy to short sell stocks that have gapped up.
I was interested as to how that would effect our returns and Sharpe Ratio; generally speaking there is more market inefficiency on the short side of the market for various reasons (including for example the inability of large pension funds to short sell stocks due to investment mandate restrictions among other things) .
