BWolinsky Trading

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Just needed to close a bit higher.

QLD Projection: 47.0021097032578 QLD Close: 48.1800003051758
QLD Projection: 45.4399995283647 QLD Close: 48.1800003051758
QLD Projection: 46.1932375590007 QLD Close: 48.1800003051758

The Price for QID is projected to be $24.2731364899939 with a close of $24.4500007629395

So, what happened here? We are currently on the overbought side, but QID is still projected to be lower. The projected price of $24.27 is less than the close of $24.45, meaning we are about .7% away from an overbought short. I had mentioned sometime ago, over the weekend, that I thought we'd rise for a couple days. While I did get the point of overbought right being today, what I knew wouldn't happen would be whether the projected prices would be sufficiently overbought to do a short trade tomorrow.

That said, I think we'll wait another day to see if we go short. Not to mention some of the momentum in the rally is starting to fade, so it is possible that we rebalance the volatility ranges here. Still, I'm at all time highs in my assets under management, and I'm looking forward to the rest of the year.

No trades in Cash Cow to report. There hasn't been a sufficiently large move down to force the stochastic 14,1 to come down below 50. Volume has been light, and there were only 4 bars today, the first three and the last one, with SPX volume above 20,000.
 
Quote from NYCMB:

Please watch their accumulation and give us alert on the coming Turning Point. TIA
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It looks like the smart money is making a play and accumulating some shorts here......rollover of the new contract beginning today might be distorting the data though.

Lets see what happens and get this bear leg going :mad:
 
Quote from tradingbug:

It looks like the smart money is making a play and accumulating some shorts here......rollover of the new contract beginning today might be distorting the data though.

Lets see what happens and get this bear leg going :mad:
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Word. I know that liquidity in QID is a lot better than QLD's, but I'm very concerned about the on open volume. I have a feeling that I could move it tomorrow. Still Overbought, but QID is pointing higher, thus, there's a trade tomorrow.
 
Quote from tradingbug:

It looks like the smart money is making a play and accumulating some shorts here......rollover of the new contract beginning today might be distorting the data though.

Lets see what happens and get this bear leg going :mad:
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Thank you tradingbug. Do you employ any complicated system to detect the accumulation of smart money?
 
I watched the CNBC townhall with Tim Geithner and I think they could have left out Jim Cramer's Victory Lap. Looks like taxes on the top 5% and on capital gains are going up in 2011, so better get into some IRA's.
 
Well, I was in QID and 23.94 which was the model's opening price as well, and I have a signal to exit QID next monday. The trade was a wash basically. Real tight range throughout the day.
 
http://www.bloomberg.com/apps/news?pid=20601087&refer=top_news&sid=aX8D5utKFuGA

It really takes a professional to analyze this article, but the main point I gather from this is that Merrill Lynch's John Thain stole Lehman's Saviour out from under them in a very small footnote of what is an article that took me several minutes to read. What I took away from this, was that it appears Thain knew at the time that his firm was on the verge of collapse. The theme of the story is all about Lehman, but it's just a few sentences that sums up why there was no bailout of Lehman. Thain took Lehman's saviour, and the money that B of A could have spent on what would have been a monstrously better purchase on Lehman went to pay for a total loss purchase of Merrill Lynch. If you doubt what I'm saying, you can visit my blog and see that nearly two days after the Merrill Lynch B of A deal was announced, I coined the phrase Financial Mutally Assured Destruction. It is even more clear to me now, having commented that the Merrill Lynch buyout of Bank of America would be BAC's downfall, that they were about to buy Lehman. Through no fault of their own, the valuable Lehman was thrown under the bus for a worthless snake oil saleman's broker called Merrill Lynch.
 
More positive slippage on the open. Got 24.30 on QID as opposed to a market model price of 24.28. The buy was at 23.94 for both the real and model price.
 
QLD Projection: 45.9908338693472 QLD Close: 49.5499992370605
QLD Projection: 48.6352731184526 QLD Close: 49.5499992370605
QLD Projection: 47.7039049421038 QLD Close: 49.5499992370605

QID Needs to drop -0.90856233740546%
Up Threshold is $ 23.5342164448662 on QID

It would appear we are settling in on the highs of the year. Given the slope I think it is reasonable for the second projection to go up further from here, so maybe 49.6 isn't overvalued after all. QID closed at 23.75, which is about .19 less than I paid to exit my trade from 23.94 to 24.3. Nice out, good positive slippage, especially on low twenty dollar stocks. A penny per share is a lot bigger percentage wise than on the QLD above $45.

Realistically, though, if you have to worry about 2 or 3 cents each way on your system, I don't really think that system works, but that's just me. I could care less if I had even a nickel of slippage, because the average profits are still way more than tenths of a percent.

That really all goes back to the first post on the previous page. All I'm really saying is that given that you get a certain price at a certain ask or bid, a few cents either way won't affect your results materially. If you disagree then you have a problem, because you don't know what you're doing.

If you're looking for more information, you can see the thread about stat arb pair trading in US Equities.

Quote from bwolinsky:

It's obvious you don't know what you're talking about, but it's ok, I've yet to hear someone from Wall Street explain how to do a pairs trade correctly, and that includes on this board, too, so don't take it personally.

You missed the point, and I'm sure you're not the only one. The premise of a pairs trade is that there is a sufficient deviation from the respective value that allows you to arbitrage the mispricing. The problem at any level below daily is that it doesn't make any sense to arbitrage out just a penny of inefficiency for obvious reasons. The daily time frame allows prices to move further away from the correct value, and you don't have to worry about commissions or transaction costs if you have a sufficiently large mispricing. Does it make sense to you to pay 99.99 if you know the price should be 100? No, it doesn't, and if that wasn't your answer, you have far greater things to be worried about. That's why millisecond strategies don't work. Generally, there's two securities perfectly correlated either positively or negatively and if they deviate from their value you take a position. The problem as the op is running into is the transaction costs and other incidental costs to running the strategy. The strategy can be corrected at the daily level for all the reasons I've spoken about previously because at the intraday level there is not a sufficiently large mispricing to take advantage of the arbitrage opportunity. The ratio will always be the same no matter if we are at the minute, second, tick or daily level. The point is, it doesn't make any sense to put the position on when there's an insignificant amount of value to pull from the market, and that's the OP's main problem.
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http://elitetrader.com/vb/newreply.php?s=&action=newreply&postid=2572894

Indeed, almost every single person I've heard explain the pair trade missed the first key step, which is to find the correlation, but once you've done that, you actually peeked to do it, which is a form of look ahead bias. Then you have some talking heads on the street go out and say "Well, I'm short the XLF, but long BAC" when these correlations aren't strong enough to produce a profitable pairs trade.

The best pairs trades are with negatively correlated pairs. If you've ever charted what a negatively correlated pair looks like and compared the volatility of the ratio with a positively correlated pair, you'd notice the patterns are quite choppy, which serves to reduce the effectiveness of whatever your overbought or oversold level is. The last point I would make is the fallacy that you must short a security and be long simultaneously. In the case of negatively correlated pairs, you can just buy the undervalued and get the same result without extra commission. For positively correlated pairs, the approach works just as well. All you do is buy the undervalued, and skip shorting the overvalued because you know the correlation will hold and you can save your commission money for another trade.
 
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