Pair Trading Strategy Journal

Quote from mlsignups:

First, Impactopia was the site I knew of but couldn't find today. I think registration is (or was) free when I registered some time back.

Second, this has been a great journal and I don't want to get anyone sidetracked so i won't go down this path too much longer if it is not needed or desired.

I did some interesting stuff with AmiBroker today. It is not designed out of the shoot for pair trading but it is easy to compare tickers and/or display them and ratios. I was able to recreate the charts that show up with a pair in pairtradefinder. I was actually able to recreate the entry and exit signals of most of the trades (not sure if i can catch them all) but out of deference to the folks at pairtradefinder won't go into what I found.

As I mentioned in my last thread i purchased the software (pairtradefinder) and intend to use it, so this is not a knock on them but I thought AmiBroker might help me refine my thinking as follows.

Assuming I have recreated the entry and exit signals I can now back test against a large basket of stock pairs at once for P&L. I can also now add some other criteria. For instance, since we want the correlation to be going up, I could add as a criteria to my backtest that I want correlation to be > 90% and that I want correlation to be greater than an x day moving average of correlation (so I know it is on the upswing). I could also add that the correlation for the last x days is > than x. There was also a post early by another contributor who talked about RSI of one stock being above 40 and another below 60. I can now add that parameter and backtest that to see how the results (P&L) change.

So my thinking is I can take what i've learned from their system and test various permutations of add-on criteria to see if any of these criteria improve the results.

IF I figure some of this out my thinking would be I can then use pairtradefinder during the day to identify the entries, but would then have more information about which ones to select for entry.

As I get time over the next few weeks i'll post some findings unless Johnny says this is too far off track for his journal.

Mike
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Hi Mike,

I will be interested in what your find. I tried to setup some pairs in Wealthlab and an old version of Tradestation to test across a portfolio, but I haven't been successful. I have PTF , but the thing with PTF is that I can go thru and find high correlation and high average trade and export to a spreadsheet then analayse the trades across a basket of pairs, but of course the report looks fantastic because I've stated off with the cream of the pairs. There are plenty of pairs with high correlation but negative average trade so they are the ones I'm interested in to see why they didn't work.

I like PTF as it's simple, but now I have no choice but to paper trade for months as I can't really backtest a portfolio (coz I'm dumb when it comes to code ! :()

regards
Ivan
 
Johnny, does the Pairtradefinder require to watch the software the entire trading session, or will trades be taken at the close, or at another particular point of time?

Thanks
Saico
 
he usually watches near the close i believe and get in near the closing price.

does anyone know how to find pairs with excel ? i mean yes i know i can get a certain amount of data for each symbol and then track the two symbol's correlations that way, but that requires me to get the data and import them each time, and that's only 1 pair.... do people actually do this over and over for ALL the symbols in their universe?

there's got to be an easier way
 
Quote from chiefraven:

he usually watches near the close i believe and get in near the closing price.

does anyone know how to find pairs with excel ? i mean yes i know i can get a certain amount of data for each symbol and then track the two symbol's correlations that way, but that requires me to get the data and import them each time, and that's only 1 pair.... do people actually do this over and over for ALL the symbols in their universe?

there's got to be an easier way
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Yes, there is a simpler way... read my previous post and see the different software i recommend to do the calcs...

When you do calculations one by one in programming code or inside Excel its called gathering results in a Linear Process way... (one by one)...

The other way is to do it all at once at the same time.. which is called gathering results in a Set Process Way (Set theory)... as in queries... you can do 1000's of pair correlations in a few minutes all at the same time...

We do a this on 7000 Pairs... but you have to know or learn how to do this... which requires knowing or learning SQL Syntax language for querying databases...

edge...


HAVE STOP <img src="http://www.enflow.com/p.gif"> WILL TRADE
 
Quote from total_keops:

C++
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LOL...

C++ would work, as in a very complex Linear approach, but... Mon Dieu (and i am not French... :) )... that would require knowledge of how to code in C++ plus code maintenance would be required over time too..

whereas.. as mentioned... Querying Pair Data using the query interface of a database engine... would be a simple and easy way to get the correlation values for 100 pairs or 10,000 pairs ... and it could be done in an Access database query engine which has a GUI interface... in a few minutes...

C++ ... its degree of difficulty... 8 to 9 out of 10...

Access Query ... its degree of difficulty... 3 out of 10...

so... choose wisely...


HAVE STOP <img src="http://www.enflow.com/p.gif"> WILL TRADE
 
as previously mentioned multiple times, excellent thread
I've also recently purchased/started paper trading signals via pairtradefinder

This seems to be an excellent resource. I am almost exclusively a day trader, but would like to implement this system.

Does anyone out there trade options as pairs? I've been considering this as to limit the potential catastrophe in any overnight events. Could be an outright purchase of a put and a call or possible spreads.

Seems like possibly a good way to limit risk to some extent, obviously adds a component of complexity. I would love to hear anyone's opinions/suggestions
 
Quote from jonnysharp:

Exited one trade for profits;

Sold HP @ 21.75
Covered UNT @ 23.99

Entered new trade;

Long RAIL @ 16.35
Short CP @ 28.78
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Hi Johny,

I have been reading this excelent thread, but couldn't find the answer for a question.

You usually does not analyze the pairs correlation on different time frames?

E.g the correlation for the rail-cp pair, seems to be on a downtrend, on recent months.
 

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