Pair Trading Strategy Journal

jonnysharp · Nov 24, 2008

Quote from Gabe2004:

Hello Jonny

I noticed that all the trades that you took on 11/19/08 are in the red as of the close on 11/21/08.
On average, how long does it take for your winning trades to be permanently in the green?
When do you decide that a trade is not viable anymore and you close it?

Thanks

Gabe

Yes generally the pairs take on some heat before returning to their mean, I think the average trade lasts about 7-10days and I exit strictly based on pairtrade finder signals, I only use discretion when choosing entry signals.

jonnysharp · Nov 25, 2008

Quote from GGSAE:

Good stuff. Many spreads have been getting blown out but there's been lots of trading opportunities out there to offset potential damange....I just want to introduce a new element to pairs you probably haven't looked at, dividends.

yes agree,

would you care to expand on dividend pair trading? thanks.

GGSAE · Nov 25, 2008

Quote from jonnysharp:

yes agree,

would you care to expand on dividend pair trading? thanks.

I can't expand on much of it, there are pair traders that have devised a trading edge and methodology strickly around dividends. I just try to put myself in a position to make sure i collect more than I pay which is a nice added bonus to my overall profitability.

One of the pairs i trade is a slower pair with a tight longer-term range. Aside from fundamentals there's also a nice dividend edge, so i'll look to put a trade close to the ex div date according to my plan as I know i can take it off for a minimum scratch trade and collect the dividend in the process. Because i hold positions for the long-term i also have a chunk of capital that i'm sitting in which i've also used for collecting dividends. In this particular pair i have a plus 9K dividend collection this year, a significant amount of the profitability. So it's something you really want to be cognizant of, especially paying out dividends.

jonnysharp · Nov 26, 2008

Closed one trade tuesday;

Sold GDX @ 25.69
Covered GG @ 24.74

Closed 2 trades today;

Sold AMT @ 27.18
Covered TV @ 15

Sold BAX @ 53.27
Covered GENZ @ 64.71

Trend Fader · Nov 27, 2008

Quote from jonnysharp:

Closed one trade tuesday;

Sold GDX @ 25.69
Covered GG @ 24.74

Closed 2 trades today;

Sold AMT @ 27.18
Covered TV @ 15

Sold BAX @ 53.27
Covered GENZ @ 64.71

How did you come up with the pair AMT TV? They are highly correlated but not in the same industry group via yahoo or other data services.

Appleseed · Dec 1, 2008

i I find their newletter hilarious
last week DAL/NWA was recommended
How do you trade a bankrupt airline?
today
PMU/NWA

They are advising to pair PMU a .09 cent stock
I bought the software a week ago and still looking for the edge

cheers john

jonnysharp · Dec 1, 2008

I don't subscribe to their newsletter, I find my own trades so I can't comment on that, I can say that im up 44% since starting this journal using the entry & exit signals from the program, so its working for me.

jonnysharp · Dec 1, 2008

Quote from GGSAE:

I can't expand on much of it, there are pair traders that have devised a trading edge and methodology strickly around dividends. I just try to put myself in a position to make sure i collect more than I pay which is a nice added bonus to my overall profitability.

One of the pairs i trade is a slower pair with a tight longer-term range. Aside from fundamentals there's also a nice dividend edge, so i'll look to put a trade close to the ex div date according to my plan as I know i can take it off for a minimum scratch trade and collect the dividend in the process. Because i hold positions for the long-term i also have a chunk of capital that i'm sitting in which i've also used for collecting dividends. In this particular pair i have a plus 9K dividend collection this year, a significant amount of the profitability. So it's something you really want to be cognizant of, especially paying out dividends.

Interesting concepts GGSAE, will have to investigate this further myself, thanks again.

jonnysharp · Dec 1, 2008

Quote from Trend Fader:

How did you come up with the pair AMT TV? They are highly correlated but not in the same industry group via yahoo or other data services.

They backtested well, this trade was based purely on high technical correlation plus I liked the ranging ratio chart, glad I took the trade as it turned out to be one of my best pair trades to date.

Trader922 · Dec 1, 2008

Quote from GGSAE:

I can't expand on much of it, there are pair traders that have devised a trading edge and methodology strickly around dividends. I just try to put myself in a position to make sure i collect more than I pay which is a nice added bonus to my overall profitability.

One of the pairs i trade is a slower pair with a tight longer-term range. Aside from fundamentals there's also a nice dividend edge, so i'll look to put a trade close to the ex div date according to my plan as I know i can take it off for a minimum scratch trade and collect the dividend in the process. Because i hold positions for the long-term i also have a chunk of capital that i'm sitting in which i've also used for collecting dividends. In this particular pair i have a plus 9K dividend collection this year, a significant amount of the profitability. So it's something you really want to be cognizant of, especially paying out dividends.

I'm not sure if this is similar to what you're referring to or not but I know of people that were using some of the shipping stocks with high yields as the long side of a pair & shorting something with a high correlation that had a low yield. Unfortunately this relationship changed earlier this year and they took a lot of heat on this strategy.

Thanks for the idea, I had not thought of things in that manner before. I need to look into this one further.

Regards,
Eric