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Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
Jonny,
Even though you say your maximum drawdown is 8.9%, i assume this is on closed equity. I would expect (for any pairs trader) that the maximum trade drawdown (for any one trade) or the MAE would be significant.
Of course closed equity for many of us this is the most important measure of performance, but others may not be able to stomach the drawdowns (essentially the "journey") of a pairs trading method. Which pretty much means its not for them. Horses for courses.
I've just got a programmer to write me a pairs trading system in Amibroker. I've found that the backtesting ability of pairs trade finder was not upto my standards (Im used to TradeSim). Actually its very poor.
Jonny congrats on your results. Well done and keep up the good work.
Even though you say your maximum drawdown is 8.9%, i assume this is on closed equity. I would expect (for any pairs trader) that the maximum trade drawdown (for any one trade) or the MAE would be significant.
Of course closed equity for many of us this is the most important measure of performance, but others may not be able to stomach the drawdowns (essentially the "journey") of a pairs trading method. Which pretty much means its not for them. Horses for courses.
I've just got a programmer to write me a pairs trading system in Amibroker. I've found that the backtesting ability of pairs trade finder was not upto my standards (Im used to TradeSim). Actually its very poor.
Jonny congrats on your results. Well done and keep up the good work.
Yes it was on closed equity, I don't know exactly because I don't measure nor look at open PnL, however I would say that max drawdown including open equity wouldn't have been more than 10% which is easy on psyche, its once you go above 30% drawdown that it becomes gut renching and most hedge funds close down if they ever reach a 50% drawdown so Im far from that. Yeah pt finder backtester was crap for awhile, but they just dramatically improved it recently, you can now see heaps of different results including equity curves, really glad they did this, has helped alot. I used it several weekends ago to re-do all my watchlists and add more profitable and robust working pairs to my radar.
Quote from jonnysharp:
New trade on Monday
Long ALL @ 23.41
Short CNA @ 13.65
Jonny-
I've got long MA/Short V too, and have opened TDW/KEX.
I'm interested in your rationale for ALL/CNA, because CNA gave results last night and ALL will give results on Thursday. So this trade gives you exposure to the volatilty implied with holding over results. For example, and staying within this sector, why not go for CB/TRV instead? I believe both have given results and their market caps are closer.
The only difference I can see is that the correlations (that I have) for ALL/CNA is .98 whereas for CB/TRV its .8 So is correlation somewhat more important to you than risk over near term results?
Thanks again for your input, it is much appreciated.
During the course of the day I closed a few trades that appeared to be just 'hanging about' and have lasted over 10 days. I think someone else posted a while back that trades open for longer than 10 days generally close for a loss, so I did a bit of culling.
This means out of my 11 closed trades, 4 were for a loss and I'm in profit to the tune of £344 (at £1/pt spreadbetting).
I have 4 open trades currently losing about £72.
Because things are looking pretty positive in so far as PTF having legs, even when pairs have been chosen without too much care I've taken steps to re-read jonnysharps filtering methods and I'm now being a little more selective in the trades I open. Today's last trade (opened about 2 hours before the close in the UK) is already 13pts to the good which is nice.
This means out of my 11 closed trades, 4 were for a loss and I'm in profit to the tune of £344 (at £1/pt spreadbetting).
I have 4 open trades currently losing about £72.
Because things are looking pretty positive in so far as PTF having legs, even when pairs have been chosen without too much care I've taken steps to re-read jonnysharps filtering methods and I'm now being a little more selective in the trades I open. Today's last trade (opened about 2 hours before the close in the UK) is already 13pts to the good which is nice.
It's been a while since I posted, and hats off to you Johnny, great job on achieving your results. I'm re-reading the journal now that I have time to start trading again, and I have a question regarding your recent MA-V trade.
A recent post you mentioned a rule based on bullish/bearish sentiments defined by the 50day low/high of the spread. If I understand your definition correctly, it looks like your being bullish on this trade when the spread is close to the 50 day high, when this was originally determined as a bearish sentiment.
If I'm correct, can you comment on your trade decision that overrode this trade rule?
Thanks again for your efforts in creating a very educational journal.
Adrian
A recent post you mentioned a rule based on bullish/bearish sentiments defined by the 50day low/high of the spread. If I understand your definition correctly, it looks like your being bullish on this trade when the spread is close to the 50 day high, when this was originally determined as a bearish sentiment.
If I'm correct, can you comment on your trade decision that overrode this trade rule?
Thanks again for your efforts in creating a very educational journal.
Adrian
Guys, Il answer both your questions at once, basically I have guidelines for potential trades, these are rigid rules as such, so whilst I look at several different charts and analysis, not all of them have to strictly conform, in the MA/V eg, the spread isn't at the extreme but its close, i liked the overall picture of the trade so I took it, remember we can trade without the filters and still turn a profit, the filters just prevent us from entering big losing trades, its risk reduction we are focused on, not trying to make every trade we take a winner which is impossible.