Building a Strategy - Theory Discussion


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Hi Filip, do you advise the backtest on the same asset in other periode or on a complete other asset ? Kr. Roland


Same asset is recommended


Hi Filip, I may be wrong and it is not really important but to model your simple Bart Simpson strategy you should go short when close-open>100 and volume>1000.
In the step3 video you said you buy at market if these conditions are met.

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Hi all, Hi Filip, I have some trouble to grasp how a stop loss works when shorting something. I can understand that for example if I short bitcoin and it suddenly moons that I would be wiped out. Going short means, that I borrow and sell something that I do not own. In case of shorting BTC I have to borrow BTC from someone else, sell them and return on a later point in time.
Lets assume I borrow a bitcoin at 3000$ and I open a short position with a stop loss at 3300$. But magically bitcoin soared to 4500$ rapidly (for example due to halving or other good news) and remains there for too long.
I have to purchase the BTC back to the person I borrowed it from, at market price now, no matter if I placed the stop loss, right? So how can a stop loss work in a short position, if I do not hold any instrument anymore? The stop loss does not magically return the BTC to me at the stop loss level.


Hi Mad, excellent question. Let me see if I can clarify it. You are completely correct when you describe the shorting of bitcoin. But stop losses works in both long and short positions.

In your scenario where bitcoin would soar to 4500, your stop loss would trigger at 3300 since it passed that level. But if there is no sell order at that level, matching your buy order. You stop loss order will buy at the best possible price to get your out of your position (market order). So if the price soars to 4500 without any sell orders in between 3000 and 4500, then yes, you would get out at 4500.

But the exactly the same would happen in a long scenario. You can just flip the script. You go long at 4500, have your stop loss at 4200. Then the price suddenly drop to 3000 and there are no buy orders in between to match your sell order. Then you would have to sell your bitcoin and close your position at 3000, the best possible rate where there are orders that matches yours.