Pair Trading Strategy Journal

OK. A whole wave of entry signals today:

Bought ACC @ 27.11
Sold NHP @ 34.83

Bought FCS @ 10.16
Sold CY @ 12.31

Bought IP @ 25.06
Sold SPP @ 4.33

Bought WX @ 15.09
Sold BMY @ 25.72(Ex-Div 30/March)

Bought FFIN @ 53.31(Ex Div today)
Sold FHN @ 13.48
 

Attachments

Oh and one more...

Sell CEO (166.17 signal level in PTF)
Buy OXY (81.58 - signal level in PTF)

I am not in this trade as I cannot short CEO through my CFD provider. The old adage of 'put the short on first' definitely saved me here.
 
I was encouraged by the positive results many have shown on this thread and I went ahead and bought the software.

I have entered stocks from S&P 500 sectors , Nasdaq 100 and FTSE100. I get plenty of buy sell signals and I have enterd some signals in my papertrading a/c. 3 days now and I am losing money on each and everyone.

I would like to improve my selection and donot know how to do this. At the moment I am selecting high corollation pairs . I have also started reading the thread from the beginning.

I would much appreciate if someone will give me briefly the criterias to be applied. .

There are so many exit signals as well and it is time consuming to find which one is applicable to ones trades. Is there some easy way to establish this as soon as exit trade has been posted.

At the moment I receive plenty of buy /sell signals. What should I do so I have fewer of these trades.

Thanks so much.
 
Quote from osho67:

I was encouraged by the positive results many have shown on this thread and I went ahead and bought the software.

I have entered stocks from S&P 500 sectors , Nasdaq 100 and FTSE100. I get plenty of buy sell signals and I have enterd some signals in my papertrading a/c. 3 days now and I am losing money on each and everyone.

I would like to improve my selection and donot know how to do this. At the moment I am selecting high corollation pairs . I have also started reading the thread from the beginning.

I would much appreciate if someone will give me briefly the criterias to be applied. .

There are so many exit signals as well and it is time consuming to find which one is applicable to ones trades. Is there some easy way to establish this as soon as exit trade has been posted.

At the moment I receive plenty of buy /sell signals. What should I do so I have fewer of these trades.

Thanks so much.
More...

Back Test

I save pairs that have a correlation of > 70%, and have an average win per trade of $300 (based on 10K per side)

After I receive a signal to enter a trade I look for

- up trending correlation above 70%

- Non-trending ratio chart that displays a regular oscillating pattern in that the pair diverges and converges in a repeating pattern.

- The percentage from its mean in the top quarter of its historical extreme.

- Then I like to fade the 50 day spread chart, if I have a signal too go long the cheap share and short the expensive share, Its a bearish spread signal, we are betting the spread between the two stocks is going to decrease, in this scenario I want to see the 50 day spread chart at new 50day highs or near about, vice versa if we are bullish the spread.

Other filters that I use, but less strict are
- Ratio / RSI divergence. The 14 day RSI needs to be < 30 or > 70.
- The +/- chart ideally the more extreme the +/- the better especially if there is no price sensitive news just been released that could explain it
 
Quote from osho67:

I was encouraged by the positive results many have shown on this thread and I went ahead and bought the software.

I have entered stocks from S&P 500 sectors , Nasdaq 100 and FTSE100. I get plenty of buy sell signals and I have enterd some signals in my papertrading a/c. 3 days now and I am losing money on each and everyone.

I would like to improve my selection and donot know how to do this. At the moment I am selecting high corollation pairs . I have also started reading the thread from the beginning.

I would much appreciate if someone will give me briefly the criterias to be applied. .

There are so many exit signals as well and it is time consuming to find which one is applicable to ones trades. Is there some easy way to establish this as soon as exit trade has been posted.

At the moment I receive plenty of buy /sell signals. What should I do so I have fewer of these trades.

Thanks so much.
More...

The filters that Davidg29 recommend are excellent, I use most of them, and PTF recommend them as well.
My advice would be to limit yourself to about 40-50 pairs to start with based on the filters suggested by Davidg29.
Tracking SPX/NASD/FTSE you will overwhelm yourself and shut down the learning proceess.Keep it simple.

Track those pairs and paper trade them for 6 months. Yes 6 months. This way you will see the cyclical nature of
of the pair-trading business - and yes it is a business. Jonny Sharp's advice to treat your pair trading as a
business that reports quarterly was the best piece of advice he has given to this forum IMO. I wish I had had it starting
out. Once you have paper traded for those 6 months, and you have proved a methodology that works in real time, you will be
ready to start trading live with your eyes wide open. You will not be blown off course by the losing weeks/months. You
will be able to apply your edge every trading day with confidence. And it is this - the consistent application of that
edge that will determine your profitability.
 
Quote from Davidg29:

Back Test

I save pairs that have a correlation of > 70%, and have an average win per trade of $300 (based on 10K per side)

After I receive a signal to enter a trade I look for

- up trending correlation above 70%

- Non-trending ratio chart that displays a regular oscillating pattern in that the pair diverges and converges in a repeating pattern.

- The percentage from its mean in the top quarter of its historical extreme.

- Then I like to fade the 50 day spread chart, if I have a signal too go long the cheap share and short the expensive share, Its a bearish spread signal, we are betting the spread between the two stocks is going to decrease, in this scenario I want to see the 50 day spread chart at new 50day highs or near about, vice versa if we are bullish the spread.

Other filters that I use, but less strict are
- Ratio / RSI divergence. The 14 day RSI needs to be < 30 or > 70.
- The +/- chart ideally the more extreme the +/- the better especially if there is no price sensitive news just been released that could explain it
More...

Thank you for your input. I was wondering for the ratio, correlation, RSI, +/- and percent from mean chart how many days do you set the preference at? also for the correlation look back, volatility standard deviation lookback, and volatility average lookback.

You meantion the RSI lookback should be at 14.

Thank you in advance
 
You buy pairtrading software and after you have set up your stocks list you start getting buy/sell signals. I donot understand why do you have to tale all the trouble analysing charts and what not.

I think software should give best possible signals . I donot expect them to be 100% right but all this analysis should not be there. Is there a way to set up various parameters and take all the signals . For people who donot understand statistics and technical analysis and ratios etc they should get best possible buy/sell signals. If in the long run you are not happy with the results stop using the software. I would like to keep things really simple. They have different service for just giving you the best signals. and I think that is what the software should do. I would not have bought the software if I had known I have to do much analysis after getting signals as well.
 
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