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Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
Got an exit signal today and closed another trade for a nice profit, 8pts in 2 days, not bad.
Sold APA @ 110.03
Covered ECA @ 67.13
Opened 1 trade today:
Long MUR @ 71.91
Short APA @ 110.03
Basically just flipped by APA position.
Wins: 5
Losses: 0
Open trades: 13
Sold APA @ 110.03
Covered ECA @ 67.13
Opened 1 trade today:
Long MUR @ 71.91
Short APA @ 110.03
Basically just flipped by APA position.
Wins: 5
Losses: 0
Open trades: 13
Attachments
Thanks, no its because I use MOC orders a lot of the time to enter and exit trades, otherwise I put on trades in the last 15minutes of the trading session.
pair trading brings about the best win:loss ratio in trading. when i began pairtrading, I started off with about 40 wins to 0 loss...........and then finally got blown up. if u keep adding layers, how do u avoid such blowups? I mean besides using many small sizes. I still pairtrade but with a consciousness and fear.
I think the trick is too make many small trades, I would limit the layering to once or twice and never expose a significant portion of my a/c to one stock, that way when the black swan event happens I still have chips to trade another day.
Quote from jonnysharp:
I think the trick is too make many small trades, I would limit the layering to once or twice and never expose a significant portion of my a/c to one stock, that way when the black swan event happens I still have chips to trade another day.
That is exactly how i trade my pairs. I very rarely layer a trade because my strategy is to just keep them for at most 2 days so layering would only help/hurt a little. I also try to keep each pair's exposure to less than 5% of my account and all pairs to less than 70% of total account value (which it very rarely exceeds 50%). If i get nervous i will beta weight the entire portfolio against the spx to reduce the exposure even further. Slow and steady wins the race...lots of little winners are better (for me) than big wins/losses. I also maintain iron condors and have been dabbling in the open only strategy to get into certain pairs that meet my criteria instead of moc's the night before.
Quote from forsalenyc:
pair trading brings about the best win:loss ratio in trading. when i began pairtrading, I started off with about 40 wins to 0 loss...........and then finally got blown up. if u keep adding layers, how do u avoid such blowups? I mean besides using many small sizes. I still pairtrade but with a consciousness and fear.
Pre determine a stop loss point and when your spread price hits that point take the loss and move on. Pairs trading is a game where we look for a statistical edge and exploit it.
Say you flip a coin 1000 times and you make 1$ every time you flip heads, and you pay .50 every time you flip tails. In the long run you make money. This example would be a risk reward of 1 : 2. T
Now lets say you have probability on your side. Your trade set up might have a 80% probability of going your direction (or a least its history show that to be the case as we never know what the future may hold). In this case you may risk 1$ to make 1$ and still end up ahead in the long run. You will be wrong 2 times out of 10. If you do not take your loss at a reasonable level you will give back everything that you made on the other 8 trades.
If you have a good pair with a high probability of mean reversion and always honor your stop loss, you should come out ahead over time. When it becomes a numbers game you are able to take much of the emotional element out of trading.
Quote from Midas:
Pre determine a stop loss point and when your spread price hits that point take the loss and move on. Pairs trading is a game where we look for a statistical edge and exploit it.
Say you flip a coin 1000 times and you make 1$ every time you flip heads, and you pay .50 every time you flip tails. In the long run you make money. This example would be a risk reward of 1 : 2. T
Now lets say you have probability on your side. Your trade set up might have a 80% probability of going your direction (or a least its history show that to be the case as we never know what the future may hold). In this case you may risk 1$ to make 1$ and still end up ahead in the long run. You will be wrong 2 times out of 10. If you do not take your loss at a reasonable level you will give back everything that you made on the other 8 trades.
If you have a good pair with a high probability of mean reversion and always honor your stop loss, you should come out ahead over time.
but it still doesnt protect against overnight risk. My biggest fear of pair trading is what happens when one leg gaps overnight due to blackswan / news. Sure your stop loss will be hit in the morning when market opens but you will already be down/blown up, especially considering most of the pairtrading are pretty leveraged to make decent profit as they are considered hedged/market neutral.
How do you protect against something like that? Only thing i can think of is to trade very stable company pairs like pepsi/coke etc..where the chance of such event is minimal.