Pair Trading Strategy Journal

Little to no opportunities it seems this last week on intraday pairs although a few daily pairs converged significantly.

Deviation occured but hardly any snap back so ended the week slightly negative all in. Unsure if theres anything to be learned other then chalk it up to poor conditions since the indices themselves seemed quite volatile.
 
Closed my best pair trade on thursday and showing significant profits since starting this journal;

Sold MOT @ 5.61
Covered JNPR @ 16.58

Opened one trade today;

Long HES @ 50.58
Short APC @ 33.50

Open trades: 6
Wins: 25
Losses: 8
 

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Quote from dazzy:

jonnysharp,

I was wondering if you have an opinion as to which indicator is your best guide to mean reversion. Is it the high and increasing correlation, or RSI? Your latest spread, HD-LOW seems to be in the middle of its range. Don't you prefer to put a spread on when its near its channel extreme? Also do you find the volatility indicator useful? thanks
Also, since it seems so many spreads go against you initially, what do you think of waiting for spreads to get uglier before putting them on? I am unsure of what is better... counting on spreads to mean revert, or playing them to continue once they blow past their channel boundaries.
It seems some days they all revert beautifully, then the next day most spreads just keep getting wider.
More...



I eyeball the ratio chart on the pair analyser tab in the program. I don't want the ratio chart to be trending, I want it to be in a wide trading range that is no bigger than 30% of the ratio, also I don't want to take trades on new ratio highs or lows, and I want to see an general oscillation pattern in the chart aswell. I try and think of it like this, if I were a trend trader what ratio chart would look the ugliest to me, then I wait for a program signal for that pair.

Yes for the spreads getting wider whilst in a trade or waiting for a higher deviation, ive played around with the settings in pairtrade finder and found changing the pair stretch to 2.50 - 3.00(I currently have it at 2.00) there aren't many trades generated and whilst it may improve profit per trade it doesn't improve overall profitability. The beauty about pair trading is you can scale into the pair as it goes against you, something i haven't done yet however I most likely will incorprate it into my trading plan next year after learning the ropes with one layer.
 
Just a quick update on my progress so far since starting this journal.

Wins 25
Losses 9
Win % 73.5%
Win:loss 0.71

Ive outperformed the SP500 by a whopping 46% since starting this journal also with significantly less volatility & exposure. It's amazing how you only need a small edge to crush the market averages. Pairtrade Finder has been a great tool to give me all these signals and I'm really happy with my performance so far. I will try and not get complacent and keep consistently taking signals I like day in day out. Thanks everyone for your ongoing support, this journal has helped me stay discliped and I have been offered some very useful ideas that have improved my trading.

Have a great week.
 
That is amazing and impressive, especially considering the recent market turmoil! Congratulations!

Could you provide some more statistical info, such as drawdowns, et. al? I am thinking of, after completing my current project, working on quantitatively and automatically trading pairs both intraday and longer term, as you are.

I've been following this journal with great interest, keep up the great work,and again, congratulations!
 
Hey Johnny cash, Sounds like you are a very satisfied since you are beating the S&P. My question to you though is that the last time you posted your P&L you mentioned you were carrying losses and underwater, but albeit less than the S&P.

Typically traders are in the game to make money everyday/month or at least be profitable enough to support oneself and family. In otherwords, if the S&P is down 45% and you are only down 5%, despite your positive spin you are still down 5%. Hard to make a living that way.

So far you have proven you can lose less than the index with a lot of work monitoring your positions every day, but you have yet to show you can make money/a living.

What are your thoughts about that? And using pair trades to make a living from versus just outperforming the S&P on a relative basis.
 
Jonny,

Great Journal, very inspiring. Congratulations on getting green!

Can you elaborate a bit on how you identify pairs? What is your filtering technique that helps you decide to add a ticker to the pairtrader db?
 
Great work jonnysharp
but as others have noted here winning percentages are misleading. there are systems that win 70% and lose money while others with only 40% winners or less go on to be winning strtergies. A good start mind you but it would be interesting
to seeing an update P/L side.
Isn't this inportant to you?
cheers
john
 
Quote from yobo:

Hey Johnny cash, Sounds like you are a very satisfied since you are beating the S&P. My question to you though is that the last time you posted your P&L you mentioned you were carrying losses and underwater, but albeit less than the S&P.

Typically traders are in the game to make money everyday/month or at least be profitable enough to support oneself and family. In otherwords, if the S&P is down 45% and you are only down 5%, despite your positive spin you are still down 5%. Hard to make a living that way.

So far you have proven you can lose less than the index with a lot of work monitoring your positions every day, but you have yet to show you can make money/a living.

What are your thoughts about that? And using pair trades to make a living from versus just outperforming the S&P on a relative basis.
More...

Thanks yobo, you have been the most regular contributor to this journal and I appreciate that. Yes several weeks ago I was slighty down, however now Im up 21% so yes I am profitable. I'm not using pair trading to make a living atm, Im using it to grow my capital, although I expect next year or maybe 2010 I can make a living doing this, I would just have to put on more trades per month to increase the probability of being profitable every month, so if I take 15-20trades per month I should be profitable 10 out of 12 months, however if I take 100 trades per month I should be profitable 49 out of 50 months and could use it to make a living plus grow capital.
 
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