Hi Myst,
I’ve shared a CELO sheet with the same updates as I sent you yesterday. The CELO spreadsheet highlighted occasions where the price rise was so extreme, our average share price effectively became zero. I had to tweak the Average Share Price formula due to the extreme volatility of the play. The zero average share price lead to a divide by zero error in the LONG Size Factor and SHORT Size Factor columns. So, for the time being, to deal with this, on occasions where price rises so much that the shares held by XDEV are effectively free, I have chosen to use the last average price per share on occasions when the average share price effectively becomes zero, from the row above. It isn’t perfect. But, it may be good enough. Certainly, it means we no longer get the divide by zero error in the Short Size Factor column. Instead of an “infinitely high” zero value we now get a very high number. A high value, along with a SELL signal, can then be interpreted as a good occasion to go SHORT.
We can decide how to use the LONG and SHORT Size Factor. One way, as I said to you, yesterday, might be to only refer to the Factor on starting a new play and scale our initial position size accordingly.
Another way might be to scale each individual BUY or SELL Market Order by the Size Factor. For example, one way might be to scale into an asset by multiplying the indicated BUY Market Order by the LONG Size Factor when scaling back into an asset after going 100% into cash. In theory, these first BUYS after going 100% to cash are made at a moment when an asset is expensive and so caution is warranted. The probability, at these moments, is that an asset will fall more. And so scaling in conservatively may be wise.
We could try to establish a threshold LONG or SHORT Size Factor value that indicates a particularly high probability or high return trade. Then, choose to take the Market Order BUY or SELL or multiply the Market Order by the Size Factor when the Size Factor value is particular high, sort of like using leverage at moments when price is a long way above or below the share price held on XDEV’s books. For example, look through the SHORT Size Factor values and see what you think would have happened had you gone SHORT on occasions when the SHORT Factor value is particularly high. Either using a trade sized by the Market Order indicated or, perhaps, multiplying the Market Order by the SHORT Size Factor. Then, perhaps, simply, covering the short, either fully or partially, in line with the Market Order given by the next BUY signal.
Best regards,
Alex
