Closed LPL:MOLX @ 0.90 from 0.93 for a small profit.
Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
If anyone of you is using cointegration, how far back to you look? I was thinking about a year.
yes that report was good for a laugh, sounds like jealous competition, maybe not, someone with a grudge.
yeah they removed portfolio mgr, apparently they were getting negative feedback and are going to develop it further before including it, I use a spreadsheet anyway, never found their portfolio mgr to be useful, just really use the program for backtesting, signals and charting.
someone a few pages back asked whether market conditions are conducive for profits or not, and I think the answer is yes, I know Jared has been on the sidelines recently with his trading, he reckons the market is at a turning point, with a chance of going back down, which I think is right, I think this will be a ''W'' shaped recession oppose to the popular ''V'' shaped recession theory. Ive found in my own pair trading PnL comes and goes in waves, you can be flat for weeks in a soft patch then BOOM overnight all of your pairs snap back quickly bringing in large profits, I guess you just got to hang out for that to happen, I try and look at and judge my results quarterly, so Im not placing too much pressure on myself to perform every single week or month, run it more like a business that reports quarterly. Great business to be in that's for sure, we can work anywhere in the world
yeah they removed portfolio mgr, apparently they were getting negative feedback and are going to develop it further before including it, I use a spreadsheet anyway, never found their portfolio mgr to be useful, just really use the program for backtesting, signals and charting.
someone a few pages back asked whether market conditions are conducive for profits or not, and I think the answer is yes, I know Jared has been on the sidelines recently with his trading, he reckons the market is at a turning point, with a chance of going back down, which I think is right, I think this will be a ''W'' shaped recession oppose to the popular ''V'' shaped recession theory. Ive found in my own pair trading PnL comes and goes in waves, you can be flat for weeks in a soft patch then BOOM overnight all of your pairs snap back quickly bringing in large profits, I guess you just got to hang out for that to happen, I try and look at and judge my results quarterly, so Im not placing too much pressure on myself to perform every single week or month, run it more like a business that reports quarterly. Great business to be in that's for sure, we can work anywhere in the world
HI Johnny,
Curious if you have found, like I have found that extreme readings on the % from mean are more reliable. For example, I have taken trades where the standard deviation went down while the % from mean had increased to extremes.
Had I entered on the extreme std dev reading I would be sitting in the red even though the std dev had come down because the percent from mean had gone up.
Which brings me to a question, how can the standard deviation on the trade go down while the percent from mean increase.
Nick
Curious if you have found, like I have found that extreme readings on the % from mean are more reliable. For example, I have taken trades where the standard deviation went down while the % from mean had increased to extremes.
Had I entered on the extreme std dev reading I would be sitting in the red even though the std dev had come down because the percent from mean had gone up.
Which brings me to a question, how can the standard deviation on the trade go down while the percent from mean increase.
Nick
hi guys,
i'm thinking about putting on the following trade next week, using actual hard earned dollars:
+ SMH semiconductor etf
- TXN texas instrument
i think the spread should increase, both stocks are at about $21 currently.
does anyone have any ideas on this pair? is it better to stay on the sidelines now because of earnings?
looks like a good pair to me, but i'm a little nervous about the timing
thanks
i'm thinking about putting on the following trade next week, using actual hard earned dollars:
+ SMH semiconductor etf
- TXN texas instrument
i think the spread should increase, both stocks are at about $21 currently.
does anyone have any ideas on this pair? is it better to stay on the sidelines now because of earnings?
looks like a good pair to me, but i'm a little nervous about the timing
thanks
This occurs because standard deviation in this case is not constant. In fact, the measure of standard deviation being used by PTF, or any use of bollinger bands etc (i.e. standard deviation from a moving average) exhibits serial correlation.
What S.D basically measures is how far from the average the ratio "usually" is. This means that as the ratio moves away from the average, and the longer it stays away, the more SD rises. This ultimately means that on any given day, SD can rise or fall by more than the ratio itself which in turn means that the % from mean can get bigger but num SDs can get smaller.
So mathematically it is understandable. But I totally agree that interpretting this situation can be a little tricky. If you are looking to add layers to a trade, should you do it as % from mean increases or num SDs goes up...
Here is a scenario for discussion.
What would you do?
Let's take freight services, ie UPS FDX EXPD & CHRW. They are all good correlation stocks.
FDX has already given earnings and wont again before autumn. UPS gives earnings on 23 July. CHRW gives earnings on 21 July. EXPD gives earnings on 4Aug BUT has already given guidance on July 10 and it was negative. So we can assume EXPD earnings are now already 'in the price'.
So to avoid holding position over upcoming earnings/guidance, we could avoid CHRW & UPS, and take FDX/EXPD, even though CHRW/EXPD & UPS/FDX are the better pairs.
What would you do?
Let's take freight services, ie UPS FDX EXPD & CHRW. They are all good correlation stocks.
FDX has already given earnings and wont again before autumn. UPS gives earnings on 23 July. CHRW gives earnings on 21 July. EXPD gives earnings on 4Aug BUT has already given guidance on July 10 and it was negative. So we can assume EXPD earnings are now already 'in the price'.
So to avoid holding position over upcoming earnings/guidance, we could avoid CHRW & UPS, and take FDX/EXPD, even though CHRW/EXPD & UPS/FDX are the better pairs.
Passing CMC:SRS and JBHT:WERN but following.