pair trading (is that what it's called?) S&P and Nasdaq?
- Thread starter 1a2b3cppp
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Quote from Bob111:
this ratio
try it yourself in excel or something.
you certainly CAN short one and long another. the only problem is that the outcome of those actions will be not necessarily positive.
IWM -SPY would be even better. the problem here is that you still need to know the future direction. because in both cases(SPY-QQQ or SPY IWM) one will outperform another. in either direction. if you can predict direction-then you set..but then why do you need the second half?
Correct!
You must have market direction established first. To do this you must have both charts of Qs and S&P. Say for LONG, the markets are in an uptrend. That means generally speaking all major indexes are heading north and have been for some time.
Now you go into RATIO analysis and pick the lead horse.
Then you go LONG the lead horse.
When done, go lick some pussy and celibrate your former celibacy.
Over and out.
Whew!!!!
Quote from Bob111:
this ratio
try it yourself in excel or something.
you certainly CAN short one and long another. the only problem is that the outcome of those actions will be not necessarily positive.
IWM -SPY would be even better. the problem here is that you still need to know the future direction. because in both cases(SPY-QQQ or SPY IWM) one will outperform another. in either direction. if you can predict direction-then you set..but then why do you need the second half?
I think you're right. And since I can't predict direction (which is what it fundamentally comes down to)... OUT!
I think the point deadbroke is trying to make is that in a certain market picking the lead horse wins - for example, in this case the lead horse would be the higher beta of the two (QQQ). In an up market it should outperform (SPY), and vice versa in a downmarket (obviously not always the case).
Being long higher beta stocks in an uptrend is a good idea, the question is always how you protect when the market isn't doing as you plan.
To answer your question, yes this is a pair trade of sorts, but it differs in that many of the constituent companies are shared between the two - that changes the dynamic of the trade versus a Pepsi/Coke pair trade.
Being long higher beta stocks in an uptrend is a good idea, the question is always how you protect when the market isn't doing as you plan.
To answer your question, yes this is a pair trade of sorts, but it differs in that many of the constituent companies are shared between the two - that changes the dynamic of the trade versus a Pepsi/Coke pair trade.
Go on the amazon website and buy the books on pairs trading. When done, if you are not discouraged or did not realize yet that this is 1980 stuff that does not work that easilly anymore then you can go to the Pairs trading thread and talk with the folks using Pair Trade Finder on stocks.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=134253
Considering the S&P 500 as thee market, and considering SPY as a proxy. dividing the cubes by SPY. yields a relative strength. A synthetic "price".
It neutralizes the influence of thee market thus revealing pure price movement (up or down).
One minor flaw is losing HL range. You're pitting one close against another.
When RS is rising it's out-performing.
In terms of signals, you treat it as you would any price. Triangles, oscillators, moving averages, etc.
I'd suggest that pairs trading is more highly correlated and concentrated (not an entire index). CAT vs DE for example. Ties up "double" the capital + transaction costs toward a perceived reversion to the mean (which may not materialized for an extended period). Not very "cost" effective on an ongoing basis.
It neutralizes the influence of thee market thus revealing pure price movement (up or down).
One minor flaw is losing HL range. You're pitting one close against another.
When RS is rising it's out-performing.
In terms of signals, you treat it as you would any price. Triangles, oscillators, moving averages, etc.
I'd suggest that pairs trading is more highly correlated and concentrated (not an entire index). CAT vs DE for example. Ties up "double" the capital + transaction costs toward a perceived reversion to the mean (which may not materialized for an extended period). Not very "cost" effective on an ongoing basis.