Hey guys, thought Iâd jump back into the fray.
I was very intrigued when this journal was started and paper traded alongside the system for a month or two before making a total of 55 trades last February, March, April. My final tallys were 69% profitable and 31% losers ⦠but my losers averaged about 1.5 times the size of my winners. (My winners were smaller). Overall, still nicely profitable.
This was compared to stats I had collected to the same point as Johnny, who had (when I stopped counting on 4/10/2009) 65% winners vs 35% losers over about 100 trades; but had average losers that about equaled average winners â so he was much more profitable.
Initially I was doing great from a profit perspective even with my smaller winners but realized that while our losers were about the same size my winners were much smaller; meaning I was taking more seemingly safer trades. At that point I had something like 75% winners; I remember writing in this journal that I had something like 17 straight profitable trades. Being dumb or aggressive or both I decided to start trading what Iâd consider wider patterns to increase the size of my winners. This led to a handful of big losers and meanwhile I got involved in a new business ventureâ¦so I stopped trading.
I decided to get back into it as of this past Monday and would like to share what Iâm doing as I learn. I still consider myself quite a novice.
First, my system I think is pretty true to the original system on this journal. I try to find ratio charts that are fairly horizontal and tend to bounce from one high range to the other. I also try to find stocks that have a history of being highly correlated over longer periods of time (150 and 200 days) but have fallen off somewhat recently. My entry, true to Pairtrader (at least a year or so ago) is when the moving average of the ratio exceeds the standard deviations of the ratio.
I originally used pairtrader too (and own it) but I also recreated the signals using AmiBroker and find it much simpler for me to scan and study. I was using the pairtrader charts as confirmation (since for some reason they just look a little different even though they are the same formula) but I broke my version of pairtrader by putting in too many pairs and have to reset the database and havenât taken the time to do that yet.
My personality is to overcomplicate things so I originally said I would completely ignore fundamentals, news, and just trade the charts. I did this and the only thing that I recall deciding I would change this time around was earnings announcements. A few of my biggest losers last time around were due to one stock having earnings after I had entered into a trade that caused it to go nuts in the wrong direction.
I also favor the concept of a large basket of smaller positions so even after only a few days I have about 25 pairs right now. Assuming I keep finding pairs some will begin to rotate out and others in so I will probably hold 30 to 40 pairs most of the time. I favor this approach in part because following the original journal I did not use stops and waited for an exit signalâ¦and I wanted to minimize my risks on any one trade. And, everything Iâve read about pairs says its all a numbers game.
I mentioned I did not use exits but I have since read at least one study that said the optimal time to exit a pair trade is 11 days and one thing I found was that most of my winning trades closed in less than 10 days and a losing trade after a week or so tended not to get too much better so Iâm thinking I may set an 11 day stop..or at least using discretion after 10 or 11 days.
I also have included some ETFs to see how they work out this time around. I had not done that before.
My ultimate goal is to make this fairly mechanical which is why Iâm still trying to avoid incorporating news and other information (other than not trading a stock during earnings announcement)â¦otherwise it would take me hours a day which I donât have.
I have limited time tonight so I will share some trade I entered into this week (many of which are not profitable yet so still offer an opportunity to enter) and some I found tonight and may enter first thing tomorrow.
Ongoing I am not always at my computer during the day but will try to regularly post what Iâve found for that day. Assuming I donât completely crash and burn I will try to keep posting. In the future I will try to include some screen shots.
I feel like I still need to remove some rustâ¦as I review my earlier entries this week the charts donât look as clean as I had originally thought but for better or worse, here are some I am in at this point⦠(long is first)
HCP/VTR
BNS/BMO
ESS/MAA
USO/OIL
XES/IEZ
VDE/DIG
LRY/NNN (perfect ratio chart for last 6 months for me)
ARD/BTU
NHI/OHI
ICF/VNQ (playing two ETFs I think.. I also love this 6 month ratio chart)
NU/WEC.. (also like this 6 month chart)
EQT/NBL
XLK/XLB
A few that look interesting tonight include:
IWV/VTI
PWE/PVX
STR/HAL
AVB/BRE
UTX/CBE
CLR/UNT
Mike
I was very intrigued when this journal was started and paper traded alongside the system for a month or two before making a total of 55 trades last February, March, April. My final tallys were 69% profitable and 31% losers ⦠but my losers averaged about 1.5 times the size of my winners. (My winners were smaller). Overall, still nicely profitable.
This was compared to stats I had collected to the same point as Johnny, who had (when I stopped counting on 4/10/2009) 65% winners vs 35% losers over about 100 trades; but had average losers that about equaled average winners â so he was much more profitable.
Initially I was doing great from a profit perspective even with my smaller winners but realized that while our losers were about the same size my winners were much smaller; meaning I was taking more seemingly safer trades. At that point I had something like 75% winners; I remember writing in this journal that I had something like 17 straight profitable trades. Being dumb or aggressive or both I decided to start trading what Iâd consider wider patterns to increase the size of my winners. This led to a handful of big losers and meanwhile I got involved in a new business ventureâ¦so I stopped trading.
I decided to get back into it as of this past Monday and would like to share what Iâm doing as I learn. I still consider myself quite a novice.
First, my system I think is pretty true to the original system on this journal. I try to find ratio charts that are fairly horizontal and tend to bounce from one high range to the other. I also try to find stocks that have a history of being highly correlated over longer periods of time (150 and 200 days) but have fallen off somewhat recently. My entry, true to Pairtrader (at least a year or so ago) is when the moving average of the ratio exceeds the standard deviations of the ratio.
I originally used pairtrader too (and own it) but I also recreated the signals using AmiBroker and find it much simpler for me to scan and study. I was using the pairtrader charts as confirmation (since for some reason they just look a little different even though they are the same formula) but I broke my version of pairtrader by putting in too many pairs and have to reset the database and havenât taken the time to do that yet.
My personality is to overcomplicate things so I originally said I would completely ignore fundamentals, news, and just trade the charts. I did this and the only thing that I recall deciding I would change this time around was earnings announcements. A few of my biggest losers last time around were due to one stock having earnings after I had entered into a trade that caused it to go nuts in the wrong direction.
I also favor the concept of a large basket of smaller positions so even after only a few days I have about 25 pairs right now. Assuming I keep finding pairs some will begin to rotate out and others in so I will probably hold 30 to 40 pairs most of the time. I favor this approach in part because following the original journal I did not use stops and waited for an exit signalâ¦and I wanted to minimize my risks on any one trade. And, everything Iâve read about pairs says its all a numbers game.
I mentioned I did not use exits but I have since read at least one study that said the optimal time to exit a pair trade is 11 days and one thing I found was that most of my winning trades closed in less than 10 days and a losing trade after a week or so tended not to get too much better so Iâm thinking I may set an 11 day stop..or at least using discretion after 10 or 11 days.
I also have included some ETFs to see how they work out this time around. I had not done that before.
My ultimate goal is to make this fairly mechanical which is why Iâm still trying to avoid incorporating news and other information (other than not trading a stock during earnings announcement)â¦otherwise it would take me hours a day which I donât have.
I have limited time tonight so I will share some trade I entered into this week (many of which are not profitable yet so still offer an opportunity to enter) and some I found tonight and may enter first thing tomorrow.
Ongoing I am not always at my computer during the day but will try to regularly post what Iâve found for that day. Assuming I donât completely crash and burn I will try to keep posting. In the future I will try to include some screen shots.
I feel like I still need to remove some rustâ¦as I review my earlier entries this week the charts donât look as clean as I had originally thought but for better or worse, here are some I am in at this point⦠(long is first)
HCP/VTR
BNS/BMO
ESS/MAA
USO/OIL
XES/IEZ
VDE/DIG
LRY/NNN (perfect ratio chart for last 6 months for me)
ARD/BTU
NHI/OHI
ICF/VNQ (playing two ETFs I think.. I also love this 6 month ratio chart)
NU/WEC.. (also like this 6 month chart)
EQT/NBL
XLK/XLB
A few that look interesting tonight include:
IWV/VTI
PWE/PVX
STR/HAL
AVB/BRE
UTX/CBE
CLR/UNT
Mike