It looks like you have a very nice pairs strategy here. I have been following the thread for a few months with interest, and due to that, took a trial of the software.
A few questions:
Are you actually trading the strategy at posted prices? The reason I ask is because with the long CLR, short ESV trade, they were put on at exactly the prices in the pairtrade finder. It is my understanding that the data is free from Yahoo, and that comes with a 20 minute delay, so how are they able to be put on at those prices on the close when posted when the signal wasn't generated at those prices until the close?
Also, in regards to this particular pair, have you looked at the fundamentals? Again, I am not at all trying to be disrespectful, just trying to follow along and understand. Do you look at the fundamentals and valuation, balance sheet, etc before putting on a trade?
In this particular pair, while it may have moved 'X' amount from the standard deviation, the underlying valuation and fundamentals DO support it. ESV is trading at 8x forward estimates, while CLR is trading at 40x forward estimates. Price to book for CLR is 5.38, while it is 1.09 for ESV. Enterprise value to EBITDA for CLR is 8.8, while it is 2.8 for ESV.
Looking at the growth component, they seem to have similar growth characteristics when looking forward, but over the past 5 years I see 0% growth for CLR, while ESV has had 64% earnings growth. Sales growth over the past 5 years is very comparable, with ESV outperforming by about 2%. Perhaps something to do with the high insider ownership at CLR, and the many options they grant their board that dilutes shareholders?
Looking at the balance sheet, I see ESV has $6.50 a share in cash, and virtually no debt, giving them a current ratio of 3.5, while CLR has virtually no cash on the books and a current ratio of 0.82. In an extended bad period, ESV will be fine while CLR will have to find a way to fund operations.
In addition, ESV is projected to grow earnings at the rate of 17% over the next 5 years versus CLR at 10% (and based on prior performance, that sounds a bit optimistic.)
My point isn't to beat you up; on the contrary, it is to understand if you are only looking at the signals and taking them as PT finder backtests suggest. If you follow Jared's mantra by putting $10k total in each pair, I can see based on today's closing prices that would equate to a gain of roughly $162 (excluding commissions)...it would seem to me to be wise to take that unless you follow these completely mechanically.
In full disclosure, I actually took the other side of this trade today, buying ESV and shorting CLR on a 1:1 basis (they have roughly the same ATR.)
I shorted CLR at $27.83 and bought ESV at $36.22, which basically puts me flat in the trade thus far. I have left room to add an additional 2 layers (in fact, I hope the spread comes in) in the $6.50-$7.50 range. I have a hard time believing this not only works in the near term, but as a hold over the next several months for 8-10 points.
Enjoy the journal, keep up the good work.