If one is trading only 7 to 10 pairs then a 20% drawdown is a real possibility unless they are trading only contractual pairs or ETFs. Unfortunately, these vehicles offer very low returns unless you are trading them 1000 times a day and scalping 0.0001 cents. The Flash Crash wiped out a lot of leveraged pair traders. For an example of that period see page 5 of the pdf file below:
http://www.pairtradingsignals.com/images/12.09.10.pdf
They claim that their system survived the period but I don't see how a leveraged system could survive? I do give them credit for not deleting the trading results and acting as if it never happened.
Another thing to be aware of is that every "Example System" that I have come across ignores dividends so the profits are often imaginary. The price drop in the short side resulted from the dividend but the trade was supposedly closed at a profit i.e. you had to pay the dividend because you were short the stock so the trade was not profitable. These example systems always seem to ignore trading costs, slippage and fees for holding short positions overnight ... hmm, why is that?
You should also be aware that it is very easy to run backtests on a bunch of pairs, ignore dividends, throw out the losers and show an amazing Profit curve. I can assure you that your real-time trading results will be much different.
I am not saying that you can't make money trading pairs; I'm just trying to add a bit of realism in regards to the possible returns.
Keep in mind that this thread is over 400 pages long and the silence of others making these great returns is deafening.
