New trades
Long CVO @ 2.44
Short NP @ 5.13
Long ACE @ 33.95
Short ACGL @ 51.34
Long CVO @ 2.44
Short NP @ 5.13
Long ACE @ 33.95
Short ACGL @ 51.34
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Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
Does anyone have extensive experience with pair trading the ETF indicies (i.e. SPY vs. DIA)? This seems much "safer" than pair trading stocks. No merger/acquisition fears; No earnings suprise; no major news to impact it the way a stock would be impacted; etc...
Of course, the major downside is the small divergence and convergence moves during most days. However, a major consideration is that the convergence between these two pairs has moved about 10 points in the last 7 months. There seems to be a direct correlation between convergence/divergence and the direction of the market. On a daily or short-term basis, I believe that the layering strategy can work pretty well.
Any thoughts....
Walt
Of course, the major downside is the small divergence and convergence moves during most days. However, a major consideration is that the convergence between these two pairs has moved about 10 points in the last 7 months. There seems to be a direct correlation between convergence/divergence and the direction of the market. On a daily or short-term basis, I believe that the layering strategy can work pretty well.
Any thoughts....
Walt
If you want something really safe play IVV:SPY, IAU:GLD.
Just kiding, it's all automated.
The more obvious something is, the more people are looking at it and there is therefore less and less opportunities.
To make money in DIA:SPY you need to take more risk (bigger size) per trade because the expected yield is smaller.
You must look for dividend and also rebalancement in the ETF. I have no clue how to get that info.
So, to me, it's a pair like any other one. Maybe there is some risks that disapear but it's all balanced by the lower expeted yield.
The way I see it it's better to spread your risk over many small trades and a good analysis of the potential risks.
I guess it could be a good candidate for yobo method #3.
Good luck.
Just kiding, it's all automated.
The more obvious something is, the more people are looking at it and there is therefore less and less opportunities.
To make money in DIA:SPY you need to take more risk (bigger size) per trade because the expected yield is smaller.
You must look for dividend and also rebalancement in the ETF. I have no clue how to get that info.
So, to me, it's a pair like any other one. Maybe there is some risks that disapear but it's all balanced by the lower expeted yield.
The way I see it it's better to spread your risk over many small trades and a good analysis of the potential risks.
I guess it could be a good candidate for yobo method #3.
Good luck.
Quote from total_keops:
If you want something really safe play IVV:SPY, IAU:GLD.
Just kiding, it's all automated.
The more obvious something is, the more people are looking at it and there is therefore less and less opportunities.
To make money in DIA:SPY you need to take more risk (bigger size) per trade because the expected yield is smaller.
You must look for dividend and also rebalancement in the ETF. I have no clue how to get that info.
So, to me, it's a pair like any other one. Maybe there is some risks that disapear but it's all balanced by the lower expeted yield.
The way I see it it's better to spread your risk over many small trades and a good analysis of the potential risks.
I guess it could be a good candidate for yobo method #3.
Good luck.
Yes indeed. ETFs are a great way to pair trade using method number three since they tend to trend very well. Excellent swing trades. Here's a pair that just triggered in my system Long SPY short KRE. 50 day moving average just crossed under the 200 day moving average a few days ago. Pair ratio trend is lower from here.
In my experience, you want to embrace the risk of stock vs. stock pairs instead of ETF's because you get much more oppurtunity, especially when using a layering strategy. I am referring to mean reverting pairs. Too much correlation is not good, just like too little is not good. Change the strategy, like trend following then too little is a good thing. Also look treat every relationship differently, each pair has a personality and needs to be treated as such. I think it is a common misconception among beginning pairs traders and I struggled with it for a long time.
Jonny,
What are you finding are your typical holding times right now?
I did 8% total net return in 2 months which I felt was pretty good. For the first 1-1/2 months the trades were very short and showing good profit. Usually only green on one side. Some pairs were held only a day. I have been taking profits whether the pair gives an exit signal or not if I get a decent percentage spike.
The last couple of weeks the pairs have been moving lock step and not generating profit in the same manner. I was wondering if you are seeing the same thing? Might just be the very directional moves of the market?
Thanks,
Lazy
What are you finding are your typical holding times right now?
I did 8% total net return in 2 months which I felt was pretty good. For the first 1-1/2 months the trades were very short and showing good profit. Usually only green on one side. Some pairs were held only a day. I have been taking profits whether the pair gives an exit signal or not if I get a decent percentage spike.
The last couple of weeks the pairs have been moving lock step and not generating profit in the same manner. I was wondering if you are seeing the same thing? Might just be the very directional moves of the market?
Thanks,
Lazy
Quote from samueldoernte:
In my experience, you want to embrace the risk of stock vs. stock pairs instead of ETF's because you get much more oppurtunity, especially when using a layering strategy. I am referring to mean reverting pairs. Too much correlation is not good, just like too little is not good. Change the strategy, like trend following then too little is a good thing. Also look treat every relationship differently, each pair has a personality and needs to be treated as such. I think it is a common misconception among beginning pairs traders and I struggled with it for a long time.
good advice here.
Quote from LazyLightnin:
Jonny,
What are you finding are your typical holding times right now?
I did 8% total net return in 2 months which I felt was pretty good. For the first 1-1/2 months the trades were very short and showing good profit. Usually only green on one side. Some pairs were held only a day. I have been taking profits whether the pair gives an exit signal or not if I get a decent percentage spike.
The last couple of weeks the pairs have been moving lock step and not generating profit in the same manner. I was wondering if you are seeing the same thing? Might just be the very directional moves of the market?
Thanks,
Lazy
Yes we are currently in a soft patch with pair trading, there is a bit of dislocation in the market and spreads are widening and holding, feels similar to early october, back then proved a good time to place spreads, with a decent bounce in the market I expect a lot of pairs to snap back quickly, even overnight.
Quote from ascheer7:
Johnnysharp....First let me thank you for this pairtrading journal. Have you updated your results since posting them on page 71 of this journal? If not, could you perhaps post them here for us?
No not yet, Il get around to it soon enough. Il do them every quarter for assessment any shorter time period is irrelevant.