Quote from FXTraderWill:
In the sense that it removes market risk, I see how on the surface it appear be less risky, but provided your directional positions have reasonable stops, the risk of being long when the market crashes or short when it rallies isn't necessarily dangerous, even in thin POS stocks. Does pairs trading as you teach it have a higher risk/reward ratio and a better winning percentage than most typical directional strategies? What is a typical win percentage/risk reward associated with pairs trading (I know it varies for everyone and all that, but as a general guess). Market risk isn't everything; what happens when the leg of the pair you're short gets bought out at a 30% premium? I'd be scared of holding shorts overnight for just that reason; in pairs trading, you're always short something. Do you make sure that the pairs you track include companies which are highly unlikely to be bought out by private equity?
Also, I must respectfully disagree with you on scalping. It may not be the most efficient strategy out there, but it is very much a viable strategy in today's hybrid market. I also think that learning to scalp is a great way to learn how the markets move and what moves them, and when a scalper decides to take a longer term perspective to earn a greater income, he can still use many of his scalp - based entries but use charts and wide trailing stops to exit, giving trades with 1:20 or greater risk/reward ratios.
