Pair Trading Strategy Journal

Quote from cipherscribe:

Damn! That's some tight stop you've got working there. I looked at the pair, and it's very nice imo.

Are your stops working out for you?

Adrian
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I dont really know, I dont have enough trades so far to tell (only 25). It's not that tight, I set it to have at least a 1:1 risk reward ratio. But maybe that can be a problem, too close?
I mainly like to use stops so I dont get into trades where I dont want to take the loss because it's too big and then it get's worse...
On this specific trade, I also got out because of the news that was worst than I first evaluated.
 
total keops, I'm not certain which would be the best parameter for me to most accurately reflect how I'm doing. I suppose I'm most used to ROI but I can't see how this can be expressed when you're spreadbetting because the amount you're risking seems to me to be variable.
I was hoping some bright spark who has a history in spreadbetting may be able to show me the way.
As it happens I'm at a point where a few friends have decided to join me and are happy for me to create a joint trading fund which I will manage. Like a mini hedge fund. Together we're likely to be able to amass around $50K so I'll be able to get my IB account working.
Still, I'd be interested to know the best way to express ones 'edge' when spreadbetting.
 
Quote from Dr Who:

total keops, I'm not certain which would be the best parameter for me to most accurately reflect how I'm doing. I suppose I'm most used to ROI but I can't see how this can be expressed when you're spreadbetting because the amount you're risking seems to me to be variable.
I was hoping some bright spark who has a history in spreadbetting may be able to show me the way.
As it happens I'm at a point where a few friends have decided to join me and are happy for me to create a joint trading fund which I will manage. Like a mini hedge fund. Together we're likely to be able to amass around $50K so I'll be able to get my IB account working.
Still, I'd be interested to know the best way to express ones 'edge' when spreadbetting.
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nothing too different about spread betting IMO. most of the common metrics would apply, including expectancy and profit factor. for a simple, rough and ready, measure i like profit factor. just add all your aggregate $ wins and all your aggregate $ losses.

PF = total wins / total losses

PF > 1 means you are profitable. many say PF > 2 means your strategy is "good" but frankly if you are making enough trades, PF>1.5 is enough to make a good living. then if you want to get into the stats a bit more, you can constantly calc PF over your last 100 trades etc and build a rolling PF. I do this for a number of different datapoints incl PF, sharpe, win rate, etc and can track whether my trading edges are consistent, deteriorating, improving, etc etc.
 
Thanks. My PF is 3.36 but I'm used to a percentage return number but can't get to grips with how I can calculate a ROI for a spreadbet.
 
Quote from Dr Who:

Thanks. My PF is 3.36 but I'm used to a percentage return number but can't get to grips with how I can calculate a ROI for a spreadbet.
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ROI is not tricky surely? Say you go long Stock A at 200p for £10 per point (penny) and go short Stock B priced at 400p. Presumably you are shorting Stock B for £5 per point.

Your theoretical actual investment here is 200p x £10 = £2,000. On the short side it's 400p x £5 = £2,000. Using these figures, calc ROI as per normal, depending on whether you include just the long side or both sides.

Personally, I only factor in the long side. So if I made £40 profit on the trade, it's 2% ROI on the trade.

BTW - 3.36 PF is amazing. If you still have anything like that after a few hundred / thousand trades, get ready to start raising some money!
 
Thanks CBuster. Yes, I suppose that's correct and I'll see how it works out.
I'm pleased with the PF but as I've only made 90 or so trades, its early days yet, though at the moment my picks are getting more accurate rather than less, as I hone my system. But hey, perhaps I'm just having a lucky start......
 
Something I've recently been reading about (and please excuse me if this has already been dealt with) is the 130/30 trading bias, where people have been trading with a long bias rather than being market neutral, like my strategy. I think the theory is that because the longterm trend of the stock market is up, its more profitable to have a long bias.
Does anyone using PTF use a trading bias or is everyone market neutral ?
 
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