Yes Ive seen that and have been testing FX and paper trading the signals, as you said the success of this has yet to be proved, too early to tell, however back testing results in PTF look positive, plus the leverage in FX is attractive. still happy to stick to stocks and ETFs.
Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
Yes Ive seen that and have been testing FX and paper trading the signals, as you said the success of this has yet to be proved, too early to tell, however back testing results in PTF look positive, plus the leverage in FX is attractive. still happy to stick to stocks and ETFs.
Hi jonny,
When do you do your 30 mins of prep/taking tades ... and do you enter positions just before the close ..or next day on open?
Similary, with regard to exit. Do you exit intraday (i.e, immediately a signal occurs?) or take them all at a set time .. before close/on open.
sleepy
Had my first sort of black swan yesterday which wiped out my last couple of months profits. One of the problems with oil stocks I suppose. One company may have made a discovery I think and their shares shot up leaving their counterpart well behind. Do I close them out or leave them to revert a little ? I'll have to investigate I think and make a decision on what actually happened....
I suppose every colour of swan is to be expected some time or other. Bite the bullet and move on I say......
I suppose every colour of swan is to be expected some time or other. Bite the bullet and move on I say......
Special situations are always the known unknown of pairs trading. Oils have been very good to me overall. Without knowing the companies involved, when did you enter the trade (at what SD?), and how far away from that SD have you been adding layers? how many layers so far?
On rare occasions when this happens to me, i might add another under/overvalued stock to the mix. One that I've had on my radar for a while and have been wanting to put to work. Maybe thats an option for you. Go back to your correlation cheatsheet and take a look to see what stands out.
It could be Black Swan Dr.Who, but my experience of trading Oil stocks is they make very poor candidates for mean reversion. Out of 47 sectors I have traded for the past 11 months Oil/Pipelines come in at bottom:
Sector/ Nr of Trades/ %Winning Trades
Oil Expl./ 23 / 26.09
Oil Intgr./ 9 / 55.56
Oil Services/ 30 / 46.67
Pipelines/ 25 / 68.00
By far the biggest loser was Oil Expl. Pipelines are about break even after 25 trades, so may drop them as well.
Thanks for the feedback.
Moc, I'm pretty unsophisticated and dont add layers but I think I've just encountered one of those situations that are bound to come up now and again.
Mean reversion in general is going to be prone to making lots of small profits only to be blown away ocassionally by a big loss. Its one of the risks built into the process and no doubt the more fundamental analysis you do the more you can protect yourself. I tend not to do much fundamental stuff, so this has been a salutory lesson for me.
coreed, I think you may be right re mean reversion and oils. They seem like the type of stock that will have a higher probablility of sudden movements away from the mean. I suspect pharmaceuticals have a similar profile, though I haven't looked.
Moc, I'm pretty unsophisticated and dont add layers but I think I've just encountered one of those situations that are bound to come up now and again.
Mean reversion in general is going to be prone to making lots of small profits only to be blown away ocassionally by a big loss. Its one of the risks built into the process and no doubt the more fundamental analysis you do the more you can protect yourself. I tend not to do much fundamental stuff, so this has been a salutory lesson for me.
coreed, I think you may be right re mean reversion and oils. They seem like the type of stock that will have a higher probablility of sudden movements away from the mean. I suspect pharmaceuticals have a similar profile, though I haven't looked.
yeah some industries are more prone to black swan events, oils/biotech/tech/smallcap/etc.....
I'm more focused on ETFs and large cap stocks and haven't had a big sting all year, knock on wood. Yes paying attention to the fundamentals and news surrounding a stock is always helpful. But at the end of the day, its your risk management that will keep you in the game, ideally you expose 10-20% in each trade, so if/when that black swan comes, you only lose a small portion of your a/c.
Lots of small trades, that's the key.
"i'm pretty unsophisticated"
"making lots of small profits only to be blown away occasionally by a big loss is one of the risks built into the process"
a strategy that is based on those parameters IS NOT a well defined process.
I'll add this one:
"Failure to Plan, Is Plans for Failure"
Good Luck to you.
Moc.
Hi Jonny,
Are you a divergence or mean reversion pairs trader? If both, what do you use as a basis to switch from one style to the other.
btw, I think I'll order the Pair Trade Finder software. Does it accomdate both divergence and mean reversion strategies for pairs trading?
thanks,
Walter
Are you a divergence or mean reversion pairs trader? If both, what do you use as a basis to switch from one style to the other.
btw, I think I'll order the Pair Trade Finder software. Does it accomdate both divergence and mean reversion strategies for pairs trading?
thanks,
Walter
hello, i am new to pairtrading.
2 short questions
which etf are you trading? and you trade only etfs or the holdings of the etf with the etf ?
thanks
2 short questions
which etf are you trading? and you trade only etfs or the holdings of the etf with the etf ?
thanks