Pair Trading Strategy Journal

closed out:

xlk/xlb for larger profit then expected since i expected it to be a smaller profit trade
closed out ard/btu for smaller profit

So far 79% wins (15), 4 losses (21%). Still some big losers that will hurt my stats when i get an exit signal.

like ngs/bjs (lots of ngs options tonight)
paas/ssri

but not back in time to put on trades tonight. possibly add them in morning.
 
I dont know if this is a come back after 5 months. I can't trade stocks anymore so I'll limit myself to ETF's. Not with Pair Trade Finder, I have my own soft. I use the cointegration instead of the correlation. So I dont go cash neutral.
First trade today after quite a while.
Long BWX * 3.44 @ 56.85
Short IEF * 1 @ 90.50
So for example Long 344 BWX and short 100 IEF.
So the ratio is 3.44*BWX/IEF and I got in @ 2.16, target 2.20, stop 2.13.
Not the best looking trade but I wanted to get my feet wet.
 

Attachments

2 exits today:

OXY/DO modest profit
PDE/NOV: small loss

16 wins/ 5 losses (76% wins)
Winners 2.3 to losers but that will change

my most recent 10 pairs that are not yet closed are acting well so i may losing some of the rust. also, some ideas by walt have helped me think about a few additional criteria (profit potential, RSI) so i'm trying to look for bigger upside potential.

i am still carrying 3 larger losers that have not triggered yet:
clr/unt
pwe/pvx
cnq/hp

if i closed them out i'd still be profitable but not by a ton. but if i can get through the first 50 or so trades on the + side and get better as I re-aclimate myself to the system i'll be happy.

ones that look interesting to me now (one was from last night but i got it backwards on the list):

SSRI/PAAS
XLB/XLI
LLTC/XLNX
CAL/DAL
VSEA/NVDA
LVS/MGM
CAM/CLB
FCX/CCI

Mike
 
Quote from total_keops:

I dont know if this is a come back after 5 months. I can't trade stocks anymore so I'll limit myself to ETF's. Not with Pair Trade Finder, I have my own soft. I use the cointegration instead of the correlation. So I dont go cash neutral.
First trade today after quite a while.
Long BWX * 3.44 @ 56.85
Short IEF * 1 @ 90.50
So for example Long 344 BWX and short 100 IEF.
So the ratio is 3.44*BWX/IEF and I got in @ 2.16, target 2.20, stop 2.13.
Not the best looking trade but I wanted to get my feet wet.
More...

Why haven't you been trading Keops? And why can't you trde equities?
 
Quote from yobo:

Why haven't you been trading Keops? And why can't you trde equities?
More...
Just got too busy in my life.
I work on a trading floor for a bank and if I buy stocks I have to fill some paperwork and keep them for minimum 30 days. This is to prevent insider information trading. Rules are internal to the bank, you sign or you dont!!!
 
I dont know if this is a come back after 5 months. I can't trade stocks anymore so I'll limit myself to ETF's. Not with Pair Trade Finder, I have my own soft. I use the cointegration instead of the correlation. So I dont go cash neutral.
First trade today after quite a while.
Long BWX * 3.44 @ 56.85
Short IEF * 1 @ 90.50
So for example Long 344 BWX and short 100 IEF.
So the ratio is 3.44*BWX/IEF and I got in @ 2.16, target 2.20, stop 2.13.
Not the best looking trade but I wanted to get my feet wet.

TOTAL Keops.

What time frame do you use to test cointegration?

I use 1 year and BWX/IEF are not cointegrated.

STEPH
 
Quote from trader26:


What time frame do you use to test cointegration?
I use 1 year and BWX/IEF are not cointegrated.
More...
I used about 110 days so close to 6 months. A small sample in fact. It may not be cointegrated over one year but over 6 months it looks like it is, unless my code is wrong and it's possible. If you look at the chart that I attached you can see that it is trading in a range. But I agree that over one year it is not as good. This is the human filter after that that decide to get in or not. I dont qualify pairs and then only look at them. I look at all combinations and if I like it when it comes I place the trade. My approach to the thing.
I used such a small sample because the ETF in my scanner that has the smallest number of days is that and I normalise all my data to it. Something I have to improve :-(

Got out at a spread of 2.17 (BWX @ 57.06 and IEF @ 90.45). Lost confidence in the move. Small profit.
 
busy day.

closed out:
hcp/vtr: small loss
peo/pten: modest loss
spg/amb: modeset profit
tco/bxp: breakeven...closed due to earning release
vno/krc: modest loss...closed due to earning release
pps/cpt: nice profit

closed out 2 due to expected earnings release tomorrow or after market today. original plan was to not hold over earnings as that hurt me last year

scorecard: 18 wins/9 losses 67%
average day hold: 10
winners to losers 1.6 x

The first 12 trades i entered are all closed at a modest profit. have 3 of the next 10 still open...the 7 closed are at a nice profit but the 3 open ones currently have losses that exceed those profits.

I've been including some profit metrics and RSI and adding some other elements and my most recent trades have been collectively getting better.
 
Quote from total_keops:

I used about 110 days so close to 6 months. A small sample in fact. It may not be cointegrated over one year but over 6 months it looks like it is, unless my code is wrong and it's possible. If you look at the chart that I attached you can see that it is trading in a range. But I agree that over one year it is not as good. This is the human filter after that that decide to get in or not. I dont qualify pairs and then only look at them. I look at all combinations and if I like it when it comes I place the trade. My approach to the thing.
I used such a small sample because the ETF in my scanner that has the smallest number of days is that and I normalise all my data to it. Something I have to improve :-(

Got out at a spread of 2.17 (BWX @ 57.06 and IEF @ 90.45). Lost confidence in the move. Small profit.
More...

Quick comment about this trade Keops.

The correlation of these two symbols for a 1 year period is negative .6ish. And given they are both treasuries and pay monthly dividends, shorting one is a losing battle because you are out of pocket each month when dividends are due. As you know, if you are short you have to pay the dividend versus collecting it.

Given the pair likes to trend and that the pair has broken its 100 day moving average, go long 80% ief and long 20% bwx. This way you can collect the dividend on both and follow investor preference/trend with the heavier weighted etf. When the pair breaks above the 100 day, simply reverse the allocation. The idea here is to catch the big move. You also have to expect the trade to be a bit choppy as the slope of the 100 day moving average has flattend out. But at least you are not getting shaken out in the noise and collecting a dividend as you waite for the bigger sustained move.

I trade the spy:tlt, the same way using moving averages to determine my allocations. Its easy and very profitable. Given they are negatively correlated, you stay long both with one acting as a hedge. Same concept
 
Yobo, thanks for the comments. I highly appreciate. This system is return to the mean but I plan on building a scanner for dispersion. The trade you describe on the SPY:TLT make sense to me and I had already planned to play something around that.
For this specific trade, BWX:IEF, I dont see them as always inversely correlated. Correlation is time varying. 30 days lookback attached.
I always thought that adding a divergence allocation to a pairs portfolio could reduce the variance of the PnL and therefore increase the sharpe. Is this something that you observe? I should backtest it but I have like 25 other systems that I am working on right now and this one is not in priority.
 

Attachments

You must log in or register to reply here.
Back
Top