Pair Trading Strategy Journal

Does anyone know how to execute a combination trade in Interactive Brokers based on the price ratio of two stocks? Unfortunately, I cannot be in front of my computer all day (nor do I really want to). Alternatively I would be happy with an email alert service that would allow me to receive an alert when two stocks reached a certain ratio so that I could then log in and execute entries or exits.

Thanks to all who have contributed to this board. I have enjoyed following it this last year and believe it has helped me become a better pairs trader.
 
Hi John,

Of course, many of us use PairTrade Finder, http://www.pairtradefinder.com/ the software used by Jonny when he started this thread (Jonny, where are you?)

And PTF has an alert service that does what you are asking for. http://www.pairtradealerts.com/ See my post on 12/17/2009.

IB allows for the entering of "combinations," but it does not have a method, not that I can find, for making trades based on price ratios. I wish it had. That would be slick. The makers of PTF, however, have introduced a Excel spreadsheet template that interfaces with IB and I believe it will execute the trades for you, based on ratios.

Does anyone have comments after using that spreadsheet?

Walt B

Quote from johnlstuart:

Does anyone know how to execute a combination trade in Interactive Brokers based on the price ratio of two stocks? Unfortunately, I cannot be in front of my computer all day (nor do I really want to). Alternatively I would be happy with an email alert service that would allow me to receive an alert when two stocks reached a certain ratio so that I could then log in and execute entries or exits.

Thanks to all who have contributed to this board. I have enjoyed following it this last year and believe it has helped me become a better pairs trader.
More...
 
Thanks Walt,
I suppose $49/mo is a reasonable price to pay to cut my tether from the computer. Quick question on the alert service. Does the service allow me to enter and monitor custom pairs or just the ones the service is recommending?
Regards,


Quote from waltbx:

Hi John,

Of course, many of us use PairTrade Finder, http://www.pairtradefinder.com/ the software used by Jonny when he started this thread (Jonny, where are you?)

And PTF has an alert service that does what you are asking for. http://www.pairtradealerts.com/ See my post on 12/17/2009.

IB allows for the entering of "combinations," but it does not have a method, not that I can find, for making trades based on price ratios. I wish it had. That would be slick. The makers of PTF, however, have introduced a Excel spreadsheet template that interfaces with IB and I believe it will execute the trades for you, based on ratios.

Does anyone have comments after using that spreadsheet?

Walt B
More...
 
Quote from johnlstuart:

Thanks Walt,
I suppose $49/mo is a reasonable price to pay to cut my tether from the computer. Quick question on the alert service. Does the service allow me to enter and monitor custom pairs or just the ones the service is recommending?
Regards,
More...

Hi John,
The alert service is just that. It sends alerts to pairs that are mechanically triggered. Nothing more nor less. You may then act on the alerts as you see fit.

The alerts come from the universe of pairs the company has selected, and an alert is triggered when the ratio of a pair moves over 2 standard deviation points from the mean average. Some pair alerts are good, some are not good. But, on the average, entering and exiting all of the alerts at closing has been profitable. The web site posts all trades since January, 2009. I cherry pick the alerts (paper trading those) and have been monitoring them since August, and my average, using their alerts, is higher. So, you have a choice: Enter all alerts without analysis just as given, or analyze and make choices.

To analyze, you may use the PairTrade Finder software, which gives the same alerts if you have their universe of pairs (the software will even email those to you), or use some other software. Or you could purchase their spreadsheet and have it make the trades automatically from the alerts, I believe. http://www.pairtradealerts.com/automated.php

$49 for the potential profit is peanuts. But that's only for the alerts, not to auto-trade them. The spreadsheet is several hundred dollars.

Jonny's goal is to check on the possible trades one hour before market closing and then enter the trades on market closing. He doesn't want to be chained to the computer. 1 hour a day!

Walt B
 
John,

Here is something from the PairTrade Alerts website. http://www.pairtradealerts.com/automated.php

"Due to popular demand you can now have Pairtrade Alerts automatically traded in your Interactive Brokers trading account with the help of our own custom designed spreadsheet.

This will give you the best chance to replicate our performance record and makes the Pairtrade Alerts service a truly investable and safe asset in your portfolio.

The spreadsheet takes the trade alerts directly from our twitter channel and then places the trade directly into TWS. It's 100% automatic trading with all entry and exit orders placed for you."

I'm wanting to hear from anyone who has purchased this. How's it working?

Walt B
 
A month ago someone posted the pair KO/PEP (Coca Cola/Pepsi) and I thought the pair at that time had too much risk for the profit potential. The ratio was on the wrong side of the trend and a profitable reversion to the mean look pretty risky to me. The trade did make a small profit, however.

Today it's in a good position. The RSI has hit support at 16, the ratio is on the proper side of the mean average trend. And both indicators have briefly peaked and are reverting. Correlation is 94%. No significant news that I have found. Earnings releases are at least a month away.

I've made a little profit already today. Hope this will end up even better. My spreadsheet says a potential of 1-2%. Not tremendous, but I'm hungry. We'll see.

Walt B
 

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