Pair Trading Strategy Journal

Quote from jho:

I haven't done a lot of intraday testing on pair trading but from my experience the edge is over days and not minutes or hours. Don't take my word for it, do the testing yourself.
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The edge is where you find it not where you think it isn't.
 
Quote from tatankas:

Hello,

Anyone have read the book:
"The Art of The Arb" Trading Manual ?

from the site:
http://www.pairtrader.com/arb_info.html

It's quite expensive, i wonder if it worth the money.
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wondering the same thing. too bad no used copies on amazon for pennies on the dollar.



pair and mental question, how do you guys handle the large swings in PnL during the day as your pairs are working?

today, I was up $900 early on, dropped to down $500 and then finished up about $200.

all my trades were pairs today pretty much. just wondering how does one stomach the big movements on PnL?
 
There are only 3 ways to increase return on capital: Lower expenses(commissions, rebates, entry/losses etc.); asset turnover, and good old fashioned leverage. If you're uneasy about the PnL swings, your size is too much for "you" probably.

Here's my .02: Cut your size by 1/3, and start aggressively scalping around your core. If you can maintain your return on capital with less size, your business is better off.

When I do my ROE comps for RV arbitrage, I always penalize the stocks whose CEOs juice returns with leverage. Any monkey can goose return levering up. Premiums are awarded for asset turnover and margins. Cheers...






pair and mental question, how do you guys handle the large swings in PnL during the day as your pairs are working?

today, I was up $900 early on, dropped to down $500 and then finished up about $200.

all my trades were pairs today pretty much. just wondering how does one stomach the big movements on PnL? [/B][/QUOTE]
 
Art of the arb is general pairs trading intraday using simple straight forward strategies and it also contains recaps of Rob and Steve's thoughts showing Position Blotters and recaps of trading days back in 2002 and 2003. Which I found most helpful when I was starting out. The main points of the whole manual are to fade bollinger band moves in pairs and do it over and over again. It's a good read, but now much of it is outdated.
 
Quote from spindr0:

The edge is where you find it not where you think it isn't.
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I would be very interested if you could expand on this. Similar to the previous poster, I have tested a handful of intraday pairs and did not find it to be profitable....
 
Quote from knocks420:

I would be very interested if you could expand on this. Similar to the previous poster, I have tested a handful of intraday pairs and did not find it to be profitable....
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This kind of reminds me of the swing traders who say that people should swing trade because you can't make money day trading. People should trade what they see and feel comfortable with.
 
Quote from spindr0:

This kind of reminds me of the swing traders who say that people should swing trade because you can't make money day trading. People should trade what they see and feel comfortable with.
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So your a discretionary intraday pairs trader?
 
Quote from knocks420:

So your a discretionary intraday pairs trader?
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I don't fit neatly into a label. My pairs aren't always pairs since they can have more than two legs. They tend to be dynamic in that they can be open for days or weeks but I tend to trade the components intraday... well, as much as possible. The legs can change as well. Some days I'm busy all day shuffling componets in and out. Other days, it's like watching paint dry :)

The legs can change as well. I also shift my bias during the day, going more long or short, depending on what I see. But by the end of the day, I'm back close to what I believe to be a neutral ratio.

Obviously, one is chasing the spread b/t the components. But another general idea is to try take profits on the winning side, substitute another leg (restoring the pair) and hold paper losses, waiting (hoping?) for a contraction. Some prefer to do the opposite but AFAIK, you book profits and hope to recover losses rather than the converse. Market reverses help you with the former, kill you with the latter.

Details are not available :)
 
Quote from spindr0:

I don't fit neatly into a label. My pairs aren't always pairs since they can have more than two legs. They tend to be dynamic in that they can be open for days or weeks but I tend to trade the components intraday... well, as much as possible. The legs can change as well. Some days I'm busy all day shuffling componets in and out. Other days, it's like watching paint dry :)

The legs can change as well. I also shift my bias during the day, going more long or short, depending on what I see. But by the end of the day, I'm back close to what I believe to be a neutral ratio.

Obviously, one is chasing the spread b/t the components. But another general idea is to try take profits on the winning side, substitute another leg (restoring the pair) and hold paper losses, waiting (hoping?) for a contraction. Some prefer to do the opposite but AFAIK, you book profits and hope to recover losses rather than the converse. Market reverses help you with the former, kill you with the latter.

Details are not available :)
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No understandable. Good approach especially if you have decent skill calling direction...
 
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