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About the long/short signals and strategy switching
Signals are generated by DLPAL LS software. For generating just the signals, the reduced functionality version is sufficient. For advance analysis including historical data generation for backtests, the professional version is required.
During higher volatility periods we use a long/short strategy that avoids overnight risk by entering positions at the open and exiting at the close of the day. With this strategy, we minimize overnight risk although trying to profit from from open to close is challenging. Daily open to close signals are more transaction intensive than holding positions overnight. On the other hand, these signals in addition to avoiding overnight risk, they also allow more discretion and flexibility, in case that is desired.
The open to close strategy has worked well since during the market correction in March 2020 but if volatility drops significantly, then regular trading hour profit potential may decline. In case that happens we may switch to smooth features and/or the regular Rank strategy that holds positions overnight. The Rank strategy is based on the same principles as the one used for weekly Market Signals reports with Dow 30 stocks but in this case all entry and exit signals apply to open of a day and the signal mix is rebalanced daily.
We also have other choices of strategies to use depending on market regimes. One strategy for example keeps positions for a minimum number of days. This is desirable in case volatility is very low. In addition, we may use different types of features depending on market regime and market risks.
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