I'd like to discuss shorting for a second. I only recently started really digging into shorting and how it operates, but I'd like to clear my head of a few notions and see if anyone else comes to the same conclusion. I'll number my thoughts:

1.) Price can go up to infinity, and can only go down to zero. Price cannot ever become negative in magnitude.

2.) Taking a long position, you assume a reward of potentially infinity, and a risk of your account going to zero.

3.) Taking a short position, you assume a reward that approaches some limit as the underlying asset's price goes to zero, and a risk of potentially infinity.

Let me state #3 in another way: with a short position, your gains are limited to how far down a price can go before it hits zero, and ITS RISK IS INFINITY. This is inherent behavior of taking short positions, but I somehow don't think many people fully grasp the magnitude of this:

If you short a $100 stock, and its price suddenly quadruples over night (very rare possibility, but let's entertain the thought for just a moment), then you owe the brokerage $100 (the $100 you were given as proceeds when the short was initiated) and also an additional $300 that you may not have had in the first place.

Let's say we have a decent algorithm that has been running for years, and you've managed to amass nearly $100,000 from taking alternating long and short positions. This is fantastic. However, be aware that if you fully leverage your account towards a short, you are making yourself extremely vulnerable to losses when flash price shifts occur. If, for example, you set a trailing stop on a short at 2% loss, then a massive price shift occurs in the market to increase the price of the underlying asset by 50%, your algorithm will do a simple comparison and say: "hmm, 50% loss is higher than 2%, so we'd better stop these losses". It then cashes out the short and you're on the hook for paying out 50% of your account's value.

This is an extreme case to be sure, but not so extreme when you find yourself with a large-ish amount of money and alternating long and short positions using full leverage on a stock that is volatile in nature (micro cap companies, etc.). For these volatile stocks, its not unheard of for pump and dump schemes to conduct a hit and run, drive the price up by 10x, then leave. By that point, your algorithm's trailing stops might have inadvertently screwed you over by realizing those losses in an attempt to save your account, but failed to do so quickly enough. If you fully leveraged $100,000 on a short in THIS scenario, you'd be on the hook for over a million dollars!

I just want to plant the seed in everyone's mind that, if you've crafted a clever algorithm that makes use of shorts, to be very careful about full leverage of your accounts. As your portfolio value increases, so does the danger.

Thanks for listening :-)

Link for consideration: http://www.marketwatch.com/story/help-my-short-position-got-crushed-and-now-i-owe-e-trade-10644556-2015-11-19