Pair Trading Question

[Shanb]

Quote from FreakofNature:

Is pair trading a fairly effective way to be in the market without much worries of major upside or major corrections?

For instance

Long AAPL

Short DELL

If the market collapses, DELL will probably drop more and AAPL less.

Trying to learn this, so any suggested reading on benefits risks, basically want to learn the ropes.

Another idea, it's quite obvious AMZN is stealing business from retailers like BBY, so why not, long AMZN short BBY.

Thanks for guidance.

When structuring a trade like this you want to be sure that you have two instruments that are at least semi-correlated. Too much correlation and you wont have any widening of the spread. I do something very similar to this but with ETF's that are semi-correlated. And always think about what will happen to the trade under different scenarios. The advantage of this type of trading is that it isn't a binary bet and there are multiple scenarios in which you can benefit. Of course there is also the chance that both instruments go against you...this means that this is a crappy trade

 

[bwolinsky]

Quote from Rationalize:

So trade them LONG/SHORT.



Come on Bowo, you're smarter than that.

I do trade long short bas and QLD. You only need to buy one or the other to get the same exposure

Quote from Rationalize:



Ok. Perhaps you shouldn't trade pairs.



???

Didn't your CFA exam cover relative value analysis within a sector? Against like-peers & competitors?

These pairs have nothing to do with relative value analysis.

I trade pairs 2-4 times per month.

 

[Rationalize]

Quote from bwolinsky:

I do trade long short bas and QLD. You only need to buy one or the other to get the same exposure

Are you sure about that?

 

[bone]

Quote from Grandluxe:

bone, what kind of software are you using for modelling?

I have custom technical studies designed exclusively for spread trading, and those studies are loaded into common charting platforms provided they have certain study capabilities required. Many of my clients use eSignal, there are also Trade Station, CQG, and Bloomberg subscribers who use my studies on their platforms as well. Some clients have adapted my studies to the CTS execution platform charting package.

 

[bwolinsky]

I need to go ask multicharts for AON conditions default to a regular setting for my batched order blocks where 20 people'd be doing 3-5 to 8 for 200.

 

[Don Bright]

Quote from marcoPolo21:

I forget, but I think the professional pair traders
want to keep the prices within 5-10% or so of each other.

You could ask Don Bright; he's always helpful.
That's one of their strategies.

If you have a big move in Dell [in the wrong direction],
you could be in trouble.
You would have about 38.5 x as many shares of Dell !

marc

You rang? LOL...thanks.... I think the DELL/AAPL pair might be a bit of a longshot. We do a lot of homework, or should I say PairCo does the heavy lifting and provides wonderful spreadsheets of analysis to help with our pairs.

We are finding, once again, that tradeable pairs, with multiple entries and exits are paying off vs. simply holding for mean reversion.

We like to expand with more pairs to reduce or overall market risk even further, using spreadsheets to alert us of entry and exit levels. We have a couple of automated spreadsheets as well.

You may want to join us for our class, May 7-9 with all of us, including Rob Friesen, CEO of PairCo. Call 702.739.1393 to register. ET discount of $250 (only $750 one time, lifetime fee). If you're serious about trading, we can help. Call me.

Don

 

[bwolinsky]

Quote from bwolinsky:

I need to go ask multicharts for AON conditions default to a regular setting for my batched order blocks where 20 people'd be doing 3-5 to 8 for 200.

That is what easylanguages default is.

 

[Rationalize]

Quote from bwolinsky:

That is what easylanguages default is.

 

[bwolinsky]

Quote from Rationalize:

The documentation shows the the default market order function in easylanguage (MC and TS) makes it so that all or none is the active fill price, and I just had to confirm that because I sort of wondered how we could just get 1 price on our fills, and it's AON default market order from sellshort/buy buytocover/sell day is an all or none order.

 

[Rationalize]

Quote from bwolinsky:

The documentation shows the the default market order function in easylanguage (MC and TS) makes it so that all or none is the active fill price, and I just had to confirm that because I sort of wondered how we could just get 1 price on our fills, and it's AON default market order from sellshort/buy buytocover/sell day is an all or none order.

An all-or-none market order?