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Pair Trading Strategy Journal
- Thread starter jonnysharp
- Start date
I have been using the new version of PTF (3.01) for about two weeks.
The interface is essentially unchanged from prior versions (the last I used before the 2.99 demo was 2.89, and it is basically the same).
The inclusion of co-integration is nice, but I am still trying to relate the current co-integration value to the historical performance of a given pair. Not much luck so far. Since the co-integration value changes over time, the only way to really look at this analytically is to have the co-integration metric at the time each trade was signaled, and compare returns from high and low scoring pairs.
So far paper trading with the new vrsion of PTF, I like it better this time around, and it is delivering on its promise.
One thing I suggested to Jared was that in the home list of pairs, one can set up signals to be delivered only if the pair meets key criteria (e.g., greater than 2 SD from the mean, along with a co-integration of 0.95 or better). That way only "good" trades are suggested from a larger list of potentially profitable pairs.
The interface is essentially unchanged from prior versions (the last I used before the 2.99 demo was 2.89, and it is basically the same).
The inclusion of co-integration is nice, but I am still trying to relate the current co-integration value to the historical performance of a given pair. Not much luck so far. Since the co-integration value changes over time, the only way to really look at this analytically is to have the co-integration metric at the time each trade was signaled, and compare returns from high and low scoring pairs.
So far paper trading with the new vrsion of PTF, I like it better this time around, and it is delivering on its promise.
One thing I suggested to Jared was that in the home list of pairs, one can set up signals to be delivered only if the pair meets key criteria (e.g., greater than 2 SD from the mean, along with a co-integration of 0.95 or better). That way only "good" trades are suggested from a larger list of potentially profitable pairs.
FX Pairs appear to ideally suited for Corr/Coint. Mean Reversion
Volatility is a constant
No Benchmark hindrance: e.g. Trending Upward Stock Market with low volatility produces flat returns.' State' of Equity Market has direct bearing on expected return for Equity pairs. This problem does not appear to exist in FX
Great offered leverage: 20:1 and up
Can start out small, e.g. IB Min. Trade Size = USD25K - Where as Equity Pairs Trading sees me frequently trading over my Max $ Trade size simply because I cannot short < 100 shares
No dividends, earnings, up/downgrades, M&A - i.e. no 'inside' surprises
Those are the arguments I can see for at least augmenting Equity Trading with FX.
Curious to hear if anyone else is trading FX with PTF.
Volatility is a constant
No Benchmark hindrance: e.g. Trending Upward Stock Market with low volatility produces flat returns.' State' of Equity Market has direct bearing on expected return for Equity pairs. This problem does not appear to exist in FX
Great offered leverage: 20:1 and up
Can start out small, e.g. IB Min. Trade Size = USD25K - Where as Equity Pairs Trading sees me frequently trading over my Max $ Trade size simply because I cannot short < 100 shares
No dividends, earnings, up/downgrades, M&A - i.e. no 'inside' surprises
Those are the arguments I can see for at least augmenting Equity Trading with FX.
Curious to hear if anyone else is trading FX with PTF.
I must say I'm very impressed so far with the latest PTF with cointegration. So far, I have not had one losing trade in two weeks. I put on about 2 to 3 pairs a day.
Before you really had to do further analysis of the pairs that were signalled. It seems now as long as the cointegration is above 90 and the pairs come from the same industry or sector, the trade will work.
Before you really had to do further analysis of the pairs that were signalled. It seems now as long as the cointegration is above 90 and the pairs come from the same industry or sector, the trade will work.
Quote from luxor:
I must say I'm very impressed so far with the latest PTF with cointegration. So far, I have not had one losing trade in two weeks. I put on about 2 to 3 pairs a day.
Before you really had to do further analysis of the pairs that were signalled. It seems now as long as the cointegration is above 90 and the pairs come from the same industry or sector, the trade will work.
I don't know. I am in three trades with more than 0.95 co-integration and classic heartbeat chart..and they are all going in the wrong direction
-HAL / +OII
-KFY / +RHI
-SWM / +WPP
@amitkumar,
What time range are you using for those 3 pairs?
I cannot say how the single PTF number is calculated. But a cointegration analysis usually produces more output.
I looked at your examples since 2001, 2007 and 2009 using the Engle-Granger method. Only KFY/RHI passes on the residuals test since 2001 at 99% confidence. That is to say, the residuals are stationary and therefore the series is cointegrated.
KFY/RHI also passes at 95% since 2007; and displays a valid mean reversion alpha number (just) over that range.
I attach a pic of the residuals for the pair since 2007. The other details to go along with that:
r2=79%
alpha=-.96
beta=1.17
half life=2.64
Hope this helps.
What time range are you using for those 3 pairs?
I cannot say how the single PTF number is calculated. But a cointegration analysis usually produces more output.
I looked at your examples since 2001, 2007 and 2009 using the Engle-Granger method. Only KFY/RHI passes on the residuals test since 2001 at 99% confidence. That is to say, the residuals are stationary and therefore the series is cointegrated.
KFY/RHI also passes at 95% since 2007; and displays a valid mean reversion alpha number (just) over that range.
I attach a pic of the residuals for the pair since 2007. The other details to go along with that:
r2=79%
alpha=-.96
beta=1.17
half life=2.64
Hope this helps.
Attachments
Quote from newguy99:
can anyone using ptf help me, when i try to load ptd and press create it has sql problem and cant create database, thank you
Newguy go to:http://www.pairtradefinder.com/ and go into forums under 'Q&A + Support' and see if there are similar posts.
Failing that mail Jarred at admin@pairtradefinder.com
He might be a couple of days getting back to you, but he will answer.
Setting up SQL can be tricky. You might want as a last resort to refer to local support for setting up the database. i.e. take your laptop/PC to an IT Tech locally to install SQL. Forums/Mails are great, but it is a lot easier sometimes to have a guy in front of the computer
Hope this helps