PORTFOLIO UPDATE | AUGUST 3, 2026
Nearly 100% of the 2026 Gains Came From Short Day Trades
The broader market has moved higher, but the underlying intraday data tells a very different story.
The algorithmic trading systems began August with a strong first trading day. Over the weekend, however, I discovered an even more interesting data point while reviewing the portfolios through the Portfolio Metrics analytics platform.
In the 18 System Portfolio NQ, our top-performing stock index portfolio, nearly all of the hypothetical net profit generated in 2026 has come from short trades.
KEY RESEARCH FINDING
Although the stock market is higher in 2026, approximately 100% of the portfolio's gains have been generated by short-side day trades.
A Rising Market Has Not Favored Long Day Trades
At first glance, this result may seem counterintuitive. The market has advanced during the year, and there have been many sharp rallies and individual upside surges that might lead traders to assume that a long-only strategy would have performed best.
The portfolio data shows otherwise.
A long-term bullish market does not necessarily create a favorable environment for intraday long strategies. A significant portion of the market's gains can occur overnight, while the regular trading session is characterized by failed breakouts, reversals and stop-driven price action.
The Day-Trade Trend Can Differ From the Long-Term Trend
One of the most important lessons from this research is that the direction of the overall market and the opportunity available to day-trading systems are not always the same.
The market can finish the year higher while long day trades struggle. Conversely, the market could trend lower over the remainder of the year while long intraday systems begin to perform better.
The long-term direction of the index does not automatically determine which side will produce the best day-trading opportunities.
What the Portfolio Metrics Data Revealed
The 18 System Portfolio NQ was developed in May 2025 and combines long and short algorithmic trading systems. Portfolio Metrics allows us to filter the results by trade direction and compare the complete portfolio with the long-only and short-only components.
When all trades are viewed together, the annual performance appears relatively consistent across 2023, 2024, 2025 and 2026. Through the first seven months of 2026, the portfolio generated approximately $120,225 in hypothetical net profit, placing it near half of the full-year 2025 result with five months still remaining.
The more surprising result appears when the portfolio is separated by trade direction:
- The long side was approximately flat to slightly negative in 2026.
- Nearly all of the year's hypothetical net profit came from short trades.
- The short side continued to make new equity peaks.
- The combined long-short portfolio maintained a lower drawdown than either directional component traded independently.
This type of directional breakdown is difficult to see when only reviewing the total portfolio equity curve.
The Best Trade Direction Changes With the Market Regime
The historical data also demonstrates why it can be dangerous to assume that one trade direction will remain dominant.
In 2023, the market environment strongly favored long day trades, and most of the portfolio's gains came from the long side. In 2024, much of the market's upside occurred during the overnight session, while the regular day session was considerably more difficult for long strategies.
That pattern continued to some degree through 2025 and into 2026, with short-side strategies becoming increasingly important to the portfolio.
This does not mean the short side will remain dominant. It means that market regimes change, and the portfolio must be prepared for more than one possible environment.
Why We Continue to Use a Long-Short Approach
The natural reaction to this research might be to remove the long strategies and trade the portfolio short-only. That would be a form of performance chasing based on the market regime that has already occurred.
Instead, we continue to maintain a long-short approach in the most liquid futures markets. We focus on diversity of methodology and evaluate each strategy based on how it contributes to the complete portfolio.
We also try to avoid applying simplistic rules such as automatically adding to recent winners or eliminating recent losers. A strategy that has struggled during the current regime may become one of the portfolio's strongest contributors when market behavior changes.
Predicting exactly when a new market cycle will begin is often more difficult than building a diversified group of strategies capable of responding to several different cycles.
What This Means for Systematic Traders
The strongest-performing side of a portfolio may not match the prevailing market narrative.
A rising index does not guarantee that long day-trading systems will outperform. A falling index would not guarantee that short systems will remain dominant.
The objective is not to impose a directional opinion on the market. The objective is to build a portfolio that can adapt as the opportunity shifts between long trades, short trades, overnight movement and regular-session price action.
Explore the Trading Systems and Portfolio Analytics
Review Capstone Trading Systems portfolios, algorithmic trading research and the analytics platform used to separate long, short and combined performance.
Visit Capstone Trading Systems Explore Portfolio MetricsThe most valuable insights are often found beneath the headline portfolio results. Breaking performance down by trade direction, market session and strategy methodology provides a clearer picture of what is actually driving the equity curve.
In 2026, that analysis revealed a result I did not expect: in a rising stock market, nearly all of the gains in our top stock index portfolio came from short day trades.