Pair Trading Strategy Journal

Quote from TRADER PA:

Jonny below is anoter screen shot for 10 year look back of QQQQ an SPY.

PA
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If you are not an HF or day trader, don't really understand the attraction of SPY/QQQQ or most ETFs from a retail pairs trader POV.

If you're trading size, maybe the liquidity factor is appealing, and no M&A activity or up/downgrades or earnings to worry about, but as your screen shot shows, the av. trade value is a measly 91.78 which I assume is based on 10k/10k.

After costs are taken out - where's the juice?
 
Quote from coreed:

If you are not an HF or day trader, don't really understand the attraction of SPY/QQQQ or most ETFs from a retail pairs trader POV.

If you're trading size, maybe the liquidity factor is appealing, and no M&A activity or up/downgrades or earnings to worry about, but as your screen shot shows, the av. trade value is a measly 91.78 which I assume is based on 10k/10k.

After costs are taken out - where's the juice?
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Excellent Point.

Stat Arb is about many positions of positive expectancy not one or a few holy grail trades. stat arbing etfs is fine, if your universe is large enough, but its not fine if spy/qqqq is soley what you use to bet the farm with.
 
Hi coreed and DGunz,

I agree that the return are minimum. I do not trade this pair. This is a pair that has more than 10 years of data which I just showed it to jonny that I was not able to do 10 years of back test.
I would go for ultra strength pairs such as QLD and SSO or QID and SDS.
I trade only ETF because I don't want severe draw down from bad or good news as posted on this forum. My ETF do not have to be in the same industry, as long as it is well correlated it is OK for me. I also can day trade which give a return about 1.5 % on my money after commission with minimum draw down. (using Combo order )
The screen shot below showed the test result from 1-8 Sept 10.

Thanks for your comments,

PA
 

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Quote from TRADER PA:

Hi coreed and DGunz,

I agree that the return are minimum. I do not trade this pair. This is a pair that has more than 10 years of data which I just showed it to jonny that I was not able to do 10 years of back test.
I would go for ultra strength pairs such as QLD and SSO or QID and SDS.
I trade only ETF because I don't want severe draw down from bad or good news as posted on this forum. My ETF do not have to be in the same industry, as long as it is well correlated it is OK for me. I also can day trade which give a return about 1.5 % on my money after commission with minimum draw down. (using Combo order )
The screen shot below showed the test result from 1-8 Sept 10.

Thanks for your comments,

PA
More...

what is your "look back" periode?...14 days or more
 
Hi fredman007

My look back period is one year, after the back test I screen out the pairs that I don't like then save the rest of the pairs. This was done about 1.5 month ago. I keep removing the pairs that have correlation < 80 from my watch list.
I just trade only the pair that have low drawdown, and not every one of them. I was planning to plant about 10 pairs so I could harvest every day. After reading this journal that some people here lost large amount of money from large drawdown, I decide not to keep more than 2 pairs at a time until I gain more experience. I do not plan to wait until exit signal if I am satisfy with the profit.


PA
 
I already asked Jared if he could make screening out a large draw down easier.
This is his response :In version 3 we are going to add portfolio back testing which will allow you to see drawdown that includes the collated open PnL from every trade from every pair in the backtest, at the moment it's a laborious job, but I just screen for pairs with avg profit per trade over a 10 yr period and this seems to work well.
It is very kind of him I really appreciate what he will do for us.


PA
 
I am curious as to how the pairtraders on this journal have been doing YTD.


If you have traded more than 25 pairs YTD, please estimate what your YTD pairtrading results would have been had you used your entire account value for pairtrading. Please use the following catagories:

<10% based on account value
10-20% based on account value
20-30% based on account value
>30% based on account value

If you do not use margin, please double your figures,as I believe that using margin when pairtrading is easy to justify. I have deliberately not asked about actual losses in the hopes of getting honest replies.

I myself am a complete newbie to pairtrading. I have only traded a couple of pairs YTD and did a little better than breakeven. Assuming that several people will reply to this poll, I will be glad to sum up the results.
 
Quote from TRADER PA:

Hi fredman007

My look back period is one year, after the back test I screen out the pairs that I don't like then save the rest of the pairs. This was done about 1.5 month ago. I keep removing the pairs that have correlation < 80 from my watch list.
I just trade only the pair that have low drawdown, and not every one of them. I was planning to plant about 10 pairs so I could harvest every day. After reading this journal that some people here lost large amount of money from large drawdown, I decide not to keep more than 2 pairs at a time until I gain more experience. I do not plan to wait until exit signal if I am satisfy with the profit.


PA
More...

thank you very much.

and when do you trade? what is your trade-setup to enter a new ETF-pair?
 
I am also new for Pair Trading, still checking the program and creating the system that suite me. I have a low pain threshold for drawdown and am trying to find way to screen out large draw down. If I can do that I will use largest drawdown for the past year or two as my stop loss point. I am not looking for yearly high double-digit or triple-digit gain or to use the profit for living expense. Just for some gain to supplement income with little stress. I am now doing day trading and Pair trading if I have to keep it overnight. I think the Pairs with neutral dollar and neutral market is safer than simply long or short stocks.
fredman007: The result that I showed on my post on 9-11-10 11.03 AM was a forward test based from the back test screening. I screened for ETF with average 25 day value >100 $ millions, winning rate = 100 % and Correlation > 80,
smallest win > $100, more than 2 transactions/ year. When I want to trade any pair I take them to do back test and eyeballing PnL chart to screen out any pair with to large a drawdown ( The pair must have the same strength not like QQQQ and SSO which is 2*ultra strength).
I find that so far any ETF with good correlation seems to work OK and the news of any individual stock does not affect the price of ETF that much.
I take profit and cut loss early and the result of overnight pair is about even. For day trade I make money on pair trading everyday until 9-13-10 that there was drawdown about 1.5 % the order to sell was not hit so I have to keep it overnight.
I usually trade only from 9.30 AM to 1.00 PM. I post my trade every day on StockVision http://www.garsworld.com/ which everyone posts trading and shows profit or loss real-time and trying to help others to succeed.
I hope when ever I have a well established system I can hold the pair longer and have better result.
Can fredman007 tell me how I place somebody quote on top like you did.

PA
 
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