2 Trades taken today:
Long HAL @ 45.07
Short CNQ @ 83.13
Long HD @ 26.00
Short LOW @ 24.31
Open trades: 4
Long HAL @ 45.07
Short CNQ @ 83.13
Long HD @ 26.00
Short LOW @ 24.31
Open trades: 4
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Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
no intraday trades yet, looking to hold trades for 4-7 days average maybe a little longer whilst I wait for a exit signal.
As Ive said before I like to take trades when a signal has been generated and the two shares move away from each other even more on no significant news as is the case with my 2 trades today.
Long GOOG @ 491.00
Short AAPL @ 176.89
Long PBG @ 29.80
Short DPS @ 24.28
Open Trades: 7
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2038939>
Long GOOG @ 491.00
Short AAPL @ 176.89
Long PBG @ 29.80
Short DPS @ 24.28
Open Trades: 7
<img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2038939>
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I was wondering if anyone would start a journal on pairs...
I trade exclusively pairs. I got a good chuckle when I saw your first pair aem/gg.
I actually traded it the other way recently and made some nice coin. Also traded hd/low recently as well. However I was long low short hd.
You asked about certain variables to look for when entering a trade...I created a spreadsheet that tracks over 500 pairs based on the closing prices and have programmed the following conditional statements into the spreadsheet:
1. Pair ratio needs to hit 2 standard deviations away from its mean based on a 20 day moving average.
2. The long position needs to have a 14 day RSI greater than 40% and the short position needs to have a 14 day RSI less than 60%.
3. Correlation needs to be greater than 70% for the trailing 60 days.
In addition, by definition pair trading is a mean reversion strategy, but we all know pairs are either in diversion or reversion mode. Getting the long and short position is critical for success and I have my spreadsheet identify for me the trend.
Like you I will hold onto a pair sometimes for a day or even weeks. I also am willing to add upto five layers deep on any given pair. However I am usually out of the pair within three weeks or have taken profits on some of my layers to deleverage.
Its also important that you have a broker that pays you interest on the short side for borrowing stocks. A key component for successful hedging.
I don't have any fundamental analysis built into my model as of yet, meaning I am not comparing relative valuations to identify pairs, but this is important especially if you are adding layers like I am. I do the fundamental analysis manually after my spreadsheet has identified a pair that meets my criteria.
Good luck with your trading and keep your positions small. The big advantage to pairs is that you can drive volume to make profits spread out over many pairs. Diversification makes good business sense.
As the number of pairs grows, you will be able to consistently take profits just about every day. Again best of luck. Its not an easy game to play, but in time you will learn to love it especially when the markets are volitile.
I trade exclusively pairs. I got a good chuckle when I saw your first pair aem/gg.
I actually traded it the other way recently and made some nice coin. Also traded hd/low recently as well. However I was long low short hd.
You asked about certain variables to look for when entering a trade...I created a spreadsheet that tracks over 500 pairs based on the closing prices and have programmed the following conditional statements into the spreadsheet:
1. Pair ratio needs to hit 2 standard deviations away from its mean based on a 20 day moving average.
2. The long position needs to have a 14 day RSI greater than 40% and the short position needs to have a 14 day RSI less than 60%.
3. Correlation needs to be greater than 70% for the trailing 60 days.
In addition, by definition pair trading is a mean reversion strategy, but we all know pairs are either in diversion or reversion mode. Getting the long and short position is critical for success and I have my spreadsheet identify for me the trend.
Like you I will hold onto a pair sometimes for a day or even weeks. I also am willing to add upto five layers deep on any given pair. However I am usually out of the pair within three weeks or have taken profits on some of my layers to deleverage.
Its also important that you have a broker that pays you interest on the short side for borrowing stocks. A key component for successful hedging.
I don't have any fundamental analysis built into my model as of yet, meaning I am not comparing relative valuations to identify pairs, but this is important especially if you are adding layers like I am. I do the fundamental analysis manually after my spreadsheet has identified a pair that meets my criteria.
Good luck with your trading and keep your positions small. The big advantage to pairs is that you can drive volume to make profits spread out over many pairs. Diversification makes good business sense.
As the number of pairs grows, you will be able to consistently take profits just about every day. Again best of luck. Its not an easy game to play, but in time you will learn to love it especially when the markets are volitile.
Account blow ups only occur if your trade size is too big. Keep your trades small and give them time. Practice smart portfolio management and trade volume through many pairs.
If both sides of the pair go against you get out after you have determined that you are wrong because of a news event, fundamentals, technicals, etc. And reverse the trade/pair. If one side is working hold on and buy another layer. I don't use a set percentage figure.
My time frame per trade is also a determing factor of when to take losses. My criteria is all set around 23 day moving averages which is usually the maximum amount of time I will hold onto a trade.
The harder question to answer is when to take profits. I always try to scale out of positions since I am scaling into them. And because I use leverage it is even more important to take profits.
Always have a daily profit goal in mind and do whatever it takes to hit that.
Hope this helps.
If both sides of the pair go against you get out after you have determined that you are wrong because of a news event, fundamentals, technicals, etc. And reverse the trade/pair. If one side is working hold on and buy another layer. I don't use a set percentage figure.
My time frame per trade is also a determing factor of when to take losses. My criteria is all set around 23 day moving averages which is usually the maximum amount of time I will hold onto a trade.
The harder question to answer is when to take profits. I always try to scale out of positions since I am scaling into them. And because I use leverage it is even more important to take profits.
Always have a daily profit goal in mind and do whatever it takes to hit that.
Hope this helps.