Intraday pair trading.
- Thread starter Bob111
- Start date
you ought to try a "seach" on pair trading first -
it's been talked about some
then ask some specific questions
Mark
you ought to try a "seach" on pair trading first -
it's been talked about some
then ask some specific questions
Thank you for advise!
So far, I found only one useful article:
Here's an example using a popular pair trade, Fanny May and Freddy Mac. I track the ratio of fnm divided by fre, which lately has been averaging 1.222. On June 4th, the ratio got to 1.235, which was a 2.4 deviation from the 30 period average (60 minute bars). I shorted fnm at 78.43 and went long fre at 63.53 using a 5:6 share ratio and looked to cover when the price reverted to the mean, which it did 4 hours later. The trade was covered with fnm at 78 and fre at 63.59 for a profit of 49 cents.
Some people trade based on the dollar spread, the price of stock A minus Stock B. If the stocks trade in a narrow range this would be ok, but is dangerous if they are trending up or down in price. Fanny and Freddy do trade in a tight range most days and sometimes I'll just go off the price spread, which has been bouncing between 14 and 15 dollars. So you'd short fnm and go long fre near 15 and do the reverse near 14.
------questions:
What pairs are good for it? Pairs, which highly correlated in price movement? Or from same industry? Or both? What about if fundamentals not same?
In example above, ratio of what been used? % change? I study many pairs from different sectors, and found, that if you chart daily % difference based on prices on close (for example) -there is a trends exists very often. Example: if you short ALTR and long XLNX on daily bases-you will lose you money, because almost every day ALTR close higher. So, questions: how to choose good pair, any examples of entry points, how to find a exit point? From my own small experience-very often-you make money, you exit, and in next hour you see, that you can double your profits by doing nothing, just wait))))). What to do, if trade turn against you? Any websites about it or books?
Any information-bad experience or good-would be helpful!
Thank you!
it's been talked about some
then ask some specific questions
Thank you for advise!
So far, I found only one useful article:
Here's an example using a popular pair trade, Fanny May and Freddy Mac. I track the ratio of fnm divided by fre, which lately has been averaging 1.222. On June 4th, the ratio got to 1.235, which was a 2.4 deviation from the 30 period average (60 minute bars). I shorted fnm at 78.43 and went long fre at 63.53 using a 5:6 share ratio and looked to cover when the price reverted to the mean, which it did 4 hours later. The trade was covered with fnm at 78 and fre at 63.59 for a profit of 49 cents.
Some people trade based on the dollar spread, the price of stock A minus Stock B. If the stocks trade in a narrow range this would be ok, but is dangerous if they are trending up or down in price. Fanny and Freddy do trade in a tight range most days and sometimes I'll just go off the price spread, which has been bouncing between 14 and 15 dollars. So you'd short fnm and go long fre near 15 and do the reverse near 14.
------questions:
What pairs are good for it? Pairs, which highly correlated in price movement? Or from same industry? Or both? What about if fundamentals not same?
In example above, ratio of what been used? % change? I study many pairs from different sectors, and found, that if you chart daily % difference based on prices on close (for example) -there is a trends exists very often. Example: if you short ALTR and long XLNX on daily bases-you will lose you money, because almost every day ALTR close higher. So, questions: how to choose good pair, any examples of entry points, how to find a exit point? From my own small experience-very often-you make money, you exit, and in next hour you see, that you can double your profits by doing nothing, just wait))))). What to do, if trade turn against you? Any websites about it or books?
Any information-bad experience or good-would be helpful!
Thank you!
There was a pretty good article about it in the May (or June?) Stocks & Commodities mag. www.traders.com
Bob111...I did a quick search here at EliteTrader and came up with the following info on Pairs Trading...you can read thru the info and decide whom to send private messages or emails to:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=6642&highlight=Pair+Trading
http://www.elitetrader.com/vb/showthread.php?s=&threadid=6642&highlight=Pair+Trading
http://www.elitetrader.com/vb/showthread.php?s=&threadid=4180&perpage=6&pagenumber=2
There should be some info in those links to get you going.
Also...I think EliteTrader should make their SEARCH menu more obvious to save a lot of time for newcomers to the site looking for answers to their important questions.
Bob111...Elite's search menu is in the upper right corner.
NihabaAshi
Ok, I have read all of those articlesâ¦â¦.thank you for advise!
Here what I learn so far: from Eldredge -----You're right, I put the short side on first (unless it's QQQ then it doesn't matter), then I put the long side on.
From nitro:
---OK, this makes sense.
Itâs obvious! What you going to do, if you bought long and your broker simply donât have shares for short? Or it was down, down, downtickâ¦
Here some more of it from Eldredge: ----Choose two stocks that you think should move together (based on historical movement market condition etc). When you think the difference in price is too great, short the one that is too high, and go long the one that is to short. When the pricing comes back into line, cover
When you think the difference in price is too great? How great is great? Is YHOO cheap now? Or itâs not? After nasdaq 5000 â1300 is low?
My question was about details, not about overall idea.
Again-how traders choose stocks? By use correlation of daily prices? If stocks from same industry and sector and if they highly correlated, would you put on long side stocks with higher P/E for example? Is anyone have statistics on that? If difference is looks good for entry, but the volume above average on one stock-is it make sense?
Why in example from my post above trader use standard deviation for calculation for entry point? As I understand, standard deviation will provide information for him, that the price becomes more volatile, unstable. No more than that. I would agree, if he says, -I enter into position, because ratio of % change of those stocks move in channel and now it in higher(lower) point. Other words-for last 50 weeks, every time they got 5 % between them, in next number of days(hours) we have crossover...blah.blah...blah... This will make sense. Is anyone have been study this? Again-as bad example- if you build a chart daily % change of ALTR - % change of XLNX- you may found that you never make money, if you will hold position overnight. They in same business, same products, same sector, same group, and very, very correlated in price. Where to exit, if trade turns against you?
All I found-is just talkâ¦..about general idea without any details.
Thank you!
Here what I learn so far: from Eldredge -----You're right, I put the short side on first (unless it's QQQ then it doesn't matter), then I put the long side on.
From nitro:
---OK, this makes sense.
Itâs obvious! What you going to do, if you bought long and your broker simply donât have shares for short? Or it was down, down, downtickâ¦
Here some more of it from Eldredge: ----Choose two stocks that you think should move together (based on historical movement market condition etc). When you think the difference in price is too great, short the one that is too high, and go long the one that is to short. When the pricing comes back into line, cover
When you think the difference in price is too great? How great is great? Is YHOO cheap now? Or itâs not? After nasdaq 5000 â1300 is low?
My question was about details, not about overall idea.
Again-how traders choose stocks? By use correlation of daily prices? If stocks from same industry and sector and if they highly correlated, would you put on long side stocks with higher P/E for example? Is anyone have statistics on that? If difference is looks good for entry, but the volume above average on one stock-is it make sense?
Why in example from my post above trader use standard deviation for calculation for entry point? As I understand, standard deviation will provide information for him, that the price becomes more volatile, unstable. No more than that. I would agree, if he says, -I enter into position, because ratio of % change of those stocks move in channel and now it in higher(lower) point. Other words-for last 50 weeks, every time they got 5 % between them, in next number of days(hours) we have crossover...blah.blah...blah... This will make sense. Is anyone have been study this? Again-as bad example- if you build a chart daily % change of ALTR - % change of XLNX- you may found that you never make money, if you will hold position overnight. They in same business, same products, same sector, same group, and very, very correlated in price. Where to exit, if trade turns against you?
All I found-is just talkâ¦..about general idea without any details.
Thank you!
Bob111...a few sentences of recommendation.
It's very unlikely someone will respond to all your questions with in-depth answers out of the kindness of their hearts.
Traders at EliteTrader and just about anywhere else will post generalities, small talk and so on with a few nibbles on some in-depth info.
I myself ask questions here...and only expect generalities. If something seems interesting...I private message the person for more in-depth information...
and if I do get adequate in-depth info as replies to my open forum questions...I'm that more hooked on EliteTrader
because I personally understand the time, energy that is required to respond to serious trading questions (plural)...as a volunteer of such info...
knowing answers will most likely be met with more questions.
Once again...I highly recommend you to contact those directly via EliteTraders private message or email that share the same interests as you.
Note: You already have a rich source of names to directly get more in-depth info...use it!
They may respond to you with the in-depth info you want...if they don't...that's their choice.
I find it absurd that many come to EliteTrader thinking someone will post many paragraphs or pages of in-depth info that attempts to answer complex trading questions.
It's best to just find someone that has posted some generalities about something your willing to explore deeper...contact that person directly and see if you two can exchange ideas in private...either by snail mail, realtime chat or whatever.
Also, you had a previous question...
Any websites about it or books?
I've heard that there are some good fee-based websites on pairs trading. Maybe you can do a google search and contact the owners/traders of such websites and dish all those questions to them...
http://www.google.ca/search?q=Pairs+Trading&ie=ISO-8859-1&hl=en&meta=
if these answers to your questions are critical to your trading...
you should be willing to pay someone for a more one-on-one consultation if the free discussion sources at EliteTrader are inadequate.
Good luck.
NihabaAshi