Pair Trading Strategy Journal

Quote from virtualmoney:

Indeed. Trending market esp. slow up trends seems to be less favorable than fast moving down market for pairs to converge more frequently...which brings to the point: How do you use beta(systematic relative risk) VS STD (volatility) of individual instrument when pairs trading?
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The short answer is I don't.

At least I don't filter pairs for beta/volatility at the trade stage. I do it at the back test phase.
On a trade by trade basis I am focused largely on correlation of the pair. Individual instrument beta/volatility I ignore. I am not saying it doesn't have value, but I when trading I don't have time(opened/closed 77 pairs this week) other than to filter for non-statistical drivers before putting on trade.
 
Hi,

the only easy tool for pair trading seems to be the pairtraderfinder. Excel may be used, but has the known drawbacks, that it is unrelyable thought easy to use. TradeStation, NinjaTrader etc. are great for general purpose trading systems, but not specialised on pair trading.

But i wonder wether it might not be easy using mathlab for identifying opportunities and using one of the other plattforms for perfectly controlling the trades.

Has anyone here experience with such an approach?

Regards to the great thread

Martin
 
Quote from yobo:

Oh man Johnny, you hurt my feelings. I have a great excel spreadsheet to analyze pairs and generate alerts. My spread sheet does everything Pairtrade finder does and probably a few things it doesn't do.
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I know it would be a lot of hard work and surely good work yielding you best of the results. I tried to code a sheet and was not quite successful. I am aiming to pair trade stocks of NSE/BSE in India.

If it is fine sharing the sheet, I would be obliged. My id is: reachlaxmidotgmail.com
 
My sheets are so customized to my style they wouldn't do you any good. I'll give you this price of advice though. Trading spreads and trying to catch the reversal for short term trades is just as difficult as buying stock and trying to predict short term trends.

You will have more success buying the stocks in an ETF that show relative strength in relation to that ETF and then shorting a percentage of the ETF against the stock to help eliminate some the volitility.

Or just long the relative performers and short laggards until the relative performance changes. Don't over think it. Analyzing the technicals of a pair ratio is the same as analyzing the technicals of a stock. Just because you are dollar neutral doesn't mean you have eliminated volitility.
 
I have read all 400 some pages in past week and needless to say the amount of information is unbelievable.

Yobo - I guess I missed your change in preference from trading stock pairs to pairing stocks with ETF. I seem to recall maybe you and/or others thought it was low risk but very low reward. Would you share why you like that strategy more now..I complete agree with you though but want to understand what motivated you.

thanks


Quote from yobo:

My sheets are so customized to my style they wouldn't do you any good. I'll give you this price of advice though. Trading spreads and trying to catch the reversal for short term trades is just as difficult as buying stock and trying to predict short term trends.

You will have more success buying the stocks in an ETF that show relative strength in relation to that ETF and then shorting a percentage of the ETF against the stock to help eliminate some the volitility.

Or just long the relative performers and short laggards until the relative performance changes. Don't over think it. Analyzing the technicals of a pair ratio is the same as analyzing the technicals of a stock. Just because you are dollar neutral doesn't mean you have eliminated volitility.
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This thread's goes back to 2008!

johnnysharp are you still trading pairs and are you still profitable?

Just downloaded PTF and plan to give this a go.
 
Assuming there are two pairs xyz/abc and wrs/abc and both gives signal concurrently with the first one signaling a buy on abc and the second one signaling a sell on abc. How to place orders for abc because both pairs are using the same abc but signaling order on oppposite direction concurrently. The broker would not let a trader buy and sell abc concurrently.

Would ignoring the abc trade and taking signals on xzy and wrs have the same trade return mathematically compared to taking abc trades for both?

What about xyz/abc signals a buy on abc today and the trader brought abc and tomorrow wrs/abc signals a sell on abc with xyz/abc trade not close yet? Should a trader close the abc trade assuming that both trades have same position units trading.
 
Quote from clarodina:

Assuming there are two pairs xyz/abc and wrs/abc and both gives signal concurrently with the first one signaling a buy on abc and the second one signaling a sell on abc. How to place orders for abc because both pairs are using the same abc but signaling order on oppposite direction concurrently. The broker would not let a trader buy and sell abc concurrently.

Would ignoring the abc trade and taking signals on xzy and wrs have the same trade return mathematically compared to taking abc trades for both?

What about xyz/abc signals a buy on abc today and the trader brought abc and tomorrow wrs/abc signals a sell on abc with xyz/abc trade not close yet? Should a trader close the abc trade assuming that both trades have same position units trading.
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Netting your positions (holding only the net position), and tracking each of the separate trades would be the best and most complicated way to handle it. I would expect that most people would just pass on any overlapping trades.
 
Would holding net position buy xyz and sell wrs ignoring abc and close out position according to each pair rule have the same return compared to holding full position assuming same amount of buy and sell position? Full position refers to buy and sell abc according
 
Do most of you execute your pairs manually or use a pairs trader like Knight Direct? Also, when you execute your pairs, are you always taking liquidity, paying the extra exchange fees, or try to get the rebates using a rebate algo?
 
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