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Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
Do you trade reversion to mean (rtm) with pairs, or is it a continuing trend. I've observed two schools of thought:
(1) RTM on cointegrated stocks
(2) Anticipate that the divergence or convergence will continue with the given pair.
Fundamentally, it's always better in the long run to go long with the better company and go short with the weaker company. However, determining which stock is the stronger and the weaker is often times a bit tricky since yesterday's performance is no guarantee of future outcome...
Walt
(1) RTM on cointegrated stocks
(2) Anticipate that the divergence or convergence will continue with the given pair.
Fundamentally, it's always better in the long run to go long with the better company and go short with the weaker company. However, determining which stock is the stronger and the weaker is often times a bit tricky since yesterday's performance is no guarantee of future outcome...
Walt
Quote from BD1:
144 trades since 8/2009.
Win rate 72.2%
Ave win 1.45%
Ave loss 2.18%
There is some learning curve in these numbers and lately ave win/loss have been the same. I had a couple of larger losses that I let run too long. Now I am better about cutting losses. Have also gotten a bit better at exiting trades. In the early trades I gave up a bit of profit being impatient on trade exits. All this comes with hands-on experience.
Overall I am pleased with my trading results and the pairs strategy. I expect I can do better on ave win/loss % but I think overall winning trades will be around 70%. That is what many others do and what many of the studies show.
To use an american sports analogy, this strategy is about hitting singles not grand slams.
Bigsalid and jones:
I am calculating individual trade return then an average of all wins (losses). So if I am investing 10,000 for each pair then my trade return (p&l) is trade return/loss divided by 20,000.
I am using the pair trade finder software and sticking pretty much to it's standard setup. It is just a simple revert to the mean based on 14 day MA. I avoid earnings releases and other big news items. Average trade length is 6.4 days. I have a time stop loss of 10-12 trading days. Most trades are losers after 8 trading days. I average about 6 trades a week with anywhere from 2 to 15 trades open at a time.
I am calculating individual trade return then an average of all wins (losses). So if I am investing 10,000 for each pair then my trade return (p&l) is trade return/loss divided by 20,000.
I am using the pair trade finder software and sticking pretty much to it's standard setup. It is just a simple revert to the mean based on 14 day MA. I avoid earnings releases and other big news items. Average trade length is 6.4 days. I have a time stop loss of 10-12 trading days. Most trades are losers after 8 trading days. I average about 6 trades a week with anywhere from 2 to 15 trades open at a time.
Thanks BD1,
Do you practice averaging down on your trades that are going against you?
thanks,
Walt
Do you practice averaging down on your trades that are going against you?
thanks,
Walt
Quote from BD1:
Bigsalid and jones:
I am calculating individual trade return then an average of all wins (losses). So if I am investing 10,000 for each pair then my trade return (p&l) is trade return/loss divided by 20,000.
I am using the pair trade finder software and sticking pretty much to it's standard setup. It is just a simple revert to the mean based on 14 day MA. I avoid earnings releases and other big news items. Average trade length is 6.4 days. I have a time stop loss of 10-12 trading days. Most trades are losers after 8 trading days. I average about 6 trades a week with anywhere from 2 to 15 trades open at a time.
Quote from saico:
New trade taken premarket.
Long AU @34.78
Short GFI @11.22
I like the WMB-MMP trade alot too, but will wait for some better entry prices since my extremes arent reached yet. Of course there is the risk of missing a good one by doing that.
Could you define your extremes Saico?