Pair Trading Strategy Journal

Quote from Podimer:

would you mind referring me to a post that explains your style of pairtrading in a slightly more detailed way so that i may learn something new to hopefully make a little extra loot?
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Fist of I am also on a comeback in pairs and I never really had any success. So I can't speak with my numbers. As I said before I take tiny positions so I experiement and get use to the think. I dont have stature.
I basically have 3 different scanners that I programmed myself. One is similar to the PTF software that jonnysharp uses, another looks for overextended moves on daily bars, like my MFC/NPBC, and the last one looks for overextended move that occurend during the day and I try to make a little scalp overnight. I also have one that I am experimenting intraday.
Here I only report my trades that are the first strategy. It simply is looking for pairs that are correlated and finding move that are 2.5 standard deviation away from the mean. And the go long short expecting mean reversion. I dont do any dispersion trades yet. I take things like 30-50 days for lookback correl, stdev and mean. I also have some manual scans that I mostly learned from reading jonny's journal. I plan on trying to use cointegration instead of correlation when I get the time (yes, contrarily to what I said 2 pages back).
I dont really have any special knowledge to transfer on pairs. Most of what I do I learned by taking notes reading the journal and also reading the Handbook of Pairs Trading and Statistical Arbitrage.

my reasoning for those pairs is their correlation, both fundamentally and technically, the latter implying that there is a reliable/tradeable mean reversion. as for the 2-3 standard deviation moves out from the mean, take a look at APC - OXY or even the T - VZ for the necessary volatility, if that is what the purpose of the deviation is?
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The pairs that you showed may be good candidates to pairs trading (I did not analyse them) but I think that right now there are not "in play". I try to get out in 2-4 days. I have no patience and I dont want to have a book of 20 pairs in my portfolio. That's just me, not necessarily the best thing to do. I may change that in the future. So we obviously can have a different view on them. And, yes, of course, there are many ways to make cream trading pairs.
sure, MCD - YUM has been a bit of a trender lately so that may not be great for a 5-7 day swing, which i get the idea is the ideal time frame for you guys?
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Yes, it really depends how long you wan to hold. If you can hold to it it make sense.
do you just get in with one layer then have in a mental stop at a particular spread price with a corresponding profit target spread price exit? i was looking at your BDX:BCR pair posted a couple of days ago and assume it may be like that as there has been rather huge spread moves in it moving over 15 points in the past 3 months thus lots of risk, no? volatility in the spreads is necessary for obvious reasons and from what i have read, it seems as if most of you guys have pretty tight risk management so i am sure that aspect is covered?
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I'm not afraid of risk in a pair, the money management at the portfolio level take care of it. This is why I dont double and layer. I bet a small position with a 1:1 to 1:3 risk ratio and as long as my winners are more frequent than my losers can be profitable. It's all about repeating the process multiple time. One could trade less frequently but take bigger positions also. Yes, I have a pre determined stop (mental) and take profit and I do take losses on stop.
anyway, any teaching on what you are doing would be most welcomed and if not, just continue the posts and i will try to figure it out by analyzing the pairs you guys put on.
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Unfortunately, I can't really teach anything but I also like to share my trades so we can see what others are doing and see if it can help us. And also, I'ts good for the motivation :)
 
Quote from total_keops:


Unfortunately, I can't really teach anything but I also like to share my trades so we can see what others are doing and see if it can help us. And also, I'ts good for the motivation :) [/B]
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hey bro, thanks so much for taking the time to pass on what you have learned in your endeavors to make some coin pairtrading, i got a lot out of it. i was finally able to download and open the PTF and read the first ten pages' posts of this thread and have a much better understanding regarding how most of you trade the pairs. on that, i see what you mean regarding a pair being "in play" or not. most importantly, checking out a lot of the results from posted entry/exit dates, it seems like it has been working out quite well :D

whilst it is different than how i was doing it before (which was greatly facilitated by heaps of leverage), the method you use seems sound overall and again, judging from the results...uh...it is happily enlightening to see that you can make consistent cash without the leverage nor adding to the pairs that are going against you.

seems great that you are trying to trade the pairs on multiple time frames. in my experience, you can definitely make money harvesting the multiple intraday chops in a spread in addition to holding for the longer term, larger moves.

best of luck with all you are doing, thanks again for the post and much thanks to Jonny for starting it and continuing to post your trades
 
Quote from Midas:

Podimer,

Many people trade cvx - xom but it does not fit my perameters. I have a list (that has grown to around 50 pairs) that I have selected by their tendency to jig (slang for trade in a well defined range and move back and forth in price often).

I usually always layer in with my max size being all layers combined. I determine the max size by the amount the pair moves and use an extreme print in the past as a mental stop. If you layer ALWAYS have an exit plan in place and do not get to big in any one pair. If you use leverage things can and will stay irrational longer than you can stay liquid at some point. Don't be stuborn, expect to take losses. They are part of the game.
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thanks Midas,

yeah, Cvx-Xom, really, i know it does not have the jigginess that some others do but when i started looking at pairs a few years back, it was said to be the quintessential pair...anyway, i am chained by my conditioning.
i never can be reminded enough about being well diversified and more, not to be "married" to any pairs, however long i may have been holding/adding to them. when they reach their stop, cut 'em off. much thanks for the reminder.
i see what you mean about the PTF being a bit "mechanical". kind of takes the guesswork out of it, if THIS then THAT. would help tremendously if you are one that is plagued by emotions/lack of objectivity in trying to decide what to do. beyond that, it is doing the work/calculations for you (if you don't have your own real time portfolio watcher). i think Jonny had hinted towards more discretionary trading in one of the early posts when he said he looks for any crazy news that may have given rise to the divergence that causes the signal. might consider the fundies as well.
either way, thanks to everyone for their posts on this thread and i will try to post some trades after i am more knowledgeable regarding the types of trades that most of you are doing, thus actually give a little back:)
 
Things are still going well for my mixture of trading CFDs and spreadbetting.
I've also discovered that trading index pairs is working well too. I wasn't sure how to create a group for these so I emailed PTF and they told me to create a new NYSE group and put the indices in as per Yahoo i.e. FTSE as ^FTSE, Dow as ^DJI etc.
I've been doing well with these the last few days and thought I'd pass it on.
 
Quote from Dr Who:

DJI v FTSE
DJI v DAX
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But you can only trade indices with CFDs and spreadbet I think. For standard stock accounts, we can just use the ETFs, DIA, SPY, QQQQ... or go more exotic FXI, EWJ, EWH...
 
Dr Who, I find that spreadbetting cos arent always able to quote the price of certain stocks online.

EDE (Empire District) is a good example. IG dont quote this via spreadbetting. However, they may do via their CFD platform.
 
OUT of my AMP:EV @ 1.09 from 1.0967
I tried to get a better fill yesterday and made it wost so I'm flat on the trade. Small loss after fees.
Also, I expected a bigger gap on the open and I am not willing to ride without that cushion.
 
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