Pair Trading Strategy Journal

As you may know I'm trading UK stocks as I'm based in the UK and I'm so far doing quite well with PTF with a strike rate of now 76.8% and a 1.54% ROI. Bearing in mind the average trade last about 7-8 days, thats not bad.

Because I have limited pairs I'm looking for some 'out of the box' ideas regarding what pairs to look for. Naturally, and like everyone else, I generally use 'same sector' pairs because it seems reasonable that shares in the same sector may well be correlated or co-integrated and they're likely to be affected by news and the general economic changes in the same way.
However, it seems to me that this probably isn't the only way to look for pairs that are likely to be well correlated walking into the future. For instance, what about companies that are very dependent on the oil price or exchange rate but are not in the same sector ?

I'd be interested to hear people's views and especially from those with greater experience than I of non-same-sector pairs trading.
 
Quote from total_keops:

Walt, you can use the IB Excel API. I made a sample for you.
1- Install the API component from IB website.
http://www.interactivebrokers.com/en/p.php?f=programInterface&ib_entity=llc
2- Enable API in TWS: DDE for Excel/Configure the Application to Support API Components
http://www.interactivebrokers.com/php/apiUsersGuide/apiguide.htm
3- In Excel, change Tools/Macro/Security to medium.
4- Start TWS.
5- Open the spreadsheet and follow the instructions.
In the same folder as the spreadsheet, put an sound file called "Chime Down.wav" or PM me your email so I send it to you cuz I dont think I can attach it here.
This can only give you an audible alert, no emails. From what I look in Google it seems doable but I dont have this feat.
If you fail and have questions ask here so I dont repeat 50 times and other can benefit also.
More...

Thanks TK,

I might use this SS as a method to exit open positions. It should alert me faster, and perhaps I can get my head around automatic exits at a particular combo price. I am noticing a few intraday exits that by the time I work out the combo price, it's too late, and I miss the exit.

I used to trade automatically through Amibroker and the IB controller, but perhaps I can work it out in excel and DDE.

Adrian
 
Quote from Dr Who:

As you may know I'm trading UK stocks as I'm based in the UK and I'm so far doing quite well with PTF with a strike rate of now 76.8% and a 1.54% ROI. Bearing in mind the average trade last about 7-8 days, thats not bad.
More...

Wow. That's a great return. I wish I was doing that. From memory your using a spreadbetter, so in theory your volatility/risk is higher. What's your Profit Factor?

Adrian
 
Quote from cipherscribe:

Thanks TK,

I might use this SS as a method to exit open positions. It should alert me faster, and perhaps I can get my head around automatic exits at a particular combo price. I am noticing a few intraday exits that by the time I work out the combo price, it's too late, and I miss the exit.

I used to trade automatically through Amibroker and the IB controller, but perhaps I can work it out in excel and DDE.

Adrian
More...
Just using the Excel DDE API sample from IB you could easylli do that. Just set a ratio for the TRUE/FALSE trigger of the first stock and the second leg if the first is filled.
 
Sincere Apologies.

I mentioned i was monitoring a trade earlier. I've just looked at SPN/BJS closer and noted that BJS is undergoing a corporate action with Baker Hughes.

Looks like our old favourite MAS/WHR is coming back into play.
 
Quote from Dr Who:

As you may know I'm trading UK stocks as I'm based in the UK and I'm so far doing quite well with PTF with a strike rate of now 76.8% and a 1.54% ROI. Bearing in mind the average trade last about 7-8 days, thats not bad.

Because I have limited pairs I'm looking for some 'out of the box' ideas regarding what pairs to look for. Naturally, and like everyone else, I generally use 'same sector' pairs because it seems reasonable that shares in the same sector may well be correlated or co-integrated and they're likely to be affected by news and the general economic changes in the same way.
However, it seems to me that this probably isn't the only way to look for pairs that are likely to be well correlated walking into the future. For instance, what about companies that are very dependent on the oil price or exchange rate but are not in the same sector ?

I'd be interested to hear people's views and especially from those with greater experience than I of non-same-sector pairs trading.
More...

Well done good result.............


Do u do this on intraday basis or as long as it takes to come back?

I presume u use spreadbetting, which sectors so far is most interesting

Thnks
 
Quote from cipherscribe:

Wow. That's a great return. I wish I was doing that. From memory your using a spreadbetter, so in theory your volatility/risk is higher. What's your Profit Factor?

Adrian
More...

PF is 0.89

I did have one disastrous foray into US stocks with a huge loser, so I'm keeping away from them.

But I'm keen to get some ideas and/or experience re putting pairs together as I'm sure the same sector system that most people use can't be the only workable idea.
 
Quote from total_keops:

Just using the Excel DDE API sample from IB you could easylli do that. Just set a ratio for the TRUE/FALSE trigger of the first stock and the second leg if the first is filled.
More...
In thinking about this, it may be a little more complex than I thought. Reason being that exit triggers are based on a moving average (Exit when the ratio crosses the MA of the ratio). To have that calculated in Excel would require historical data, not just the current feed from IB.

Has anyone stored historical data from IB into Excel and would like to share?
 
Quote from cipherscribe:

In thinking about this, it may be a little more complex than I thought. Reason being that exit triggers are based on a moving average (Exit when the ratio crosses the MA of the ratio). To have that calculated in Excel would require historical data, not just the current feed from IB.

Has anyone stored historical data from IB into Excel and would like to share?
More...

I've put in about 300 hours into developing a workable DDE spreadsheet.

In relation to the MA question.

I enter 2 stocks into excel, then run a macro. This macro gets the live bid/ask data from IB and streams in.

I then grab historical prices from Google finance and it feeds the 14 day MA straight into excel.

It plots the current ratio ( the true ratio as it divides the ASK for the long leg, by the BID for the short leg) against the MA and gives me an expectancy in $$ terms.

If the current ratio is above the MA for a "Buy Pair" (or below for a sell) the exit is triggered and it sends an order to IB to close each individual leg with a very tight trailing stop. This order is sent with a MOC order, and when one of these two orders has traded it cancels the other. This ensures we don't hold any legs overnight.

Keen to speak to anyone with good programming experience to take it to the next level.
 
This journal seems to have gone super cold, Jonny seems to be off enjoying the spoils of his gains....Good for him.

Yesterday I got my Profit Factor above 2, and at the same time racked up my 100th pair trade since May 4th.

Average days in trade is about 11, with an average of just under 1% return per trade. Average annualised return is 51%.

I trade through IB with nothing more than a standard margin account - ie using up to 2x invested equity.

FCH/DDR and AMCC/PSEM were 2 recent good trades.

Hope others are kicking butt! :-)

Adrian
 
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