Pair Trading Strategy Journal

Hi Pairsguy123,

I am using Pair Trade finder and it seems to do the job but I am not all that confident about the back testing algorithm, it doesn't seem to take into account multiple layers during the back testing. I may be wrong though but my test results don't seem to change when I add additional layers even though the additional layers would have been hit.

I have just looked at the introductory video for the Iris platform and it certainly does look good. Do you have any idea of the cost?

John
 
Hi John,

I agree with pair trade finder. i played around with the backtester and it basically shows making money in nearly every combination of settings...it's not accurate.

I got a free trial for Iris and spoke to one of their sales people who was extremely helpful in explaining how the system works. i haven't gone fully automated yet but the option is there, and the charts are really impressive (they plot all your entry/exit points and you trade directly from them). As far as the cost, I was told it depends on what firm I'm at trading with. They list all the available firms on the site, and I see interactive brokers is one (which i have an account at). i'm most likely going to move forward with a live account and give it a try.

Mike
 
Quote from JohnP1000:

Hi Deucy,

Once again thank you for your response to my post.

I took a trade on AVB/ESS, it looked good to me so I decided to go for it although I missed the optimum entry by spending too long making up my mind. It still looks promising though.

Thank you for posting the charts, they do make it look like a promising pair.

For the moment, I am thinking through a few things such as stops, I am considering monetary and time stops. The monetary stop would be a percentage of my equity, say 2% and the time stop may be for example 30 days. There is an argument that capital in a stagnant trade is best released and re-used for a new opportunity.

I am also looking into the market neutrality issue. Using dollar neutrality is fine so long as the volatilities are similar but if they are different then there is a market direction bias. I have looked at using the stock Betas to work out the investment for each leg but I am not sure that the stock betas are very accurate. However, I read something on another site where the trader uses the last 8 days Average True Range (ATR) of each stock to calculate the investment in each leg and this seems to make sense. I am reviewing my existing trades to see what difference there would have been using beta neutrality.

I haven't placed many trades over the last couple of weeks because I want to review what I have done so far and dissect my trades to see what works well and what isn't so good. So far, if I include the losses of my currently active trades, my pairs trading has returned just over 2% of equity per month. I am hoping that my active trades will end up in profit so perhaps I shouldn't be including them in my performance calculations. Anyway, I am happy with the way it has been going and hopefully I can improve the performance through better due diligence on my trade selection.

That's it for now, let's see what pairs turn up next week.

John
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Good luck on AVB ESS. You're welcome on the charts. I hope it helps others in watching the pair and trading.

What trading platform are you using that allows for stops on pairs ?...for instance as you explained percentage of equity or percentage of time ? Is it independent of a brokerage or proprietary to a brokerage ?

If you were to have a difference for capital applied to each leg, intuitively I could possibly see where it can be sometime helpful based on market direction and sometime hurtful. For instance, if you are long a leg that has a beta twice as much as your short leg, and both are driven up with an upward market, that would be good. But if the market declined badly, your long leg would suffer much worse than your short leg. So aren't you betting on market direction ?

A 2% gain per month is 24% per year. It sure beats the investor hunting with difficulty a 5% or 6% per annum yield.
 
Quote from PairsGuy123:

i've been a long time pairs trader and looking for more advanced software to trade with. I've used pairtrade finder but it's really not that great--i'd rather just trade pairs by hand. wondering if anyone here has tried the iris pairs trading system? i was on their website and the software looks amazing. apparently you can scalp, day trade, or long term trade pairs with it and it can be fully automated (according to their website). thanks for the replies.
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It has a chat room. If you could get in there you could ask your questions about it. But then you have to be a subscriber. It would be nice to get a week free-be. I wonder how robust its pairs finder is ?

Question: The platform allows you to pull SD and other analytics from the charts. Not to be flip, but seriously, so what ? What the charts do in graphics, my prophet charts do also with respect to chart plots. I can also magnify any time term within a selected month chart or days charts. So for me, the platform is as good as the input: GIGO....garbage in, garbage out. The platform is dependent on the subscription to its pairs finder software. There are plenty of those around anyway.

BTW, in its overview, it gives lists of different sectors and states (and I infer / paraphrase) ain't it nice to be able to spread your trades over different sectors....... be diversified ? Funny. Just as it pumps (rightfully) the innate nature of pair trading to be market neutral, so are pairs to sectors. I don't care if my pair dives or rips up with or contrary to the market, and I don't care if all 50 of my trade pairs are simultaniously in the same sector for that same reason. I'm just being picky ! My statement is not a knock on their platform.
 
Quote from PairsGuy123:

Hi John,

I agree with pair trade finder. i played around with the backtester and it basically shows making money in nearly every combination of settings...it's not accurate.

I got a free trial for Iris and spoke to one of their sales people who was extremely helpful in explaining how the system works. i haven't gone fully automated yet but the option is there, and the charts are really impressive (they plot all your entry/exit points and you trade directly from them). As far as the cost, I was told it depends on what firm I'm at trading with. They list all the available firms on the site, and I see interactive brokers is one (which i have an account at). i'm most likely going to move forward with a live account and give it a try.

Mike
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Sorry PairsGuy........ You posted a few minutes before me, and I didn't see it while I was composing my last post.

Good luck, with the platform and keep us apprised of your liking for it...pros and cons.
 
ok..i asked if anyone had used this software the other day but didn't get any responses from those that have. I've now moved to a live account with interactive brokers using Iris and all i have to say is WOW. I have not seen scalping/ day trading signals made so clear since the early 2000s than off these Iris charts. Plus they show the entries and exits plotted right on them (up to 20 layers/levels mind you!). all the info can be exported to excel for easy analysis...and every detail of each trade and every level is available. why hasn't anyone on here mentioned this software before??! good luck to all you pairs guys that are making money currently...but i highly suggest you check this software out.

Mike
 
Quote from PairsGuy123:

ok..i asked if anyone had used this software the other day but didn't get any responses from those that have. I've now moved to a live account with interactive brokers using Iris and all i have to say is WOW. I have not seen scalping/ day trading signals made so clear since the early 2000s than off these Iris charts. Plus they show the entries and exits plotted right on them (up to 20 layers/levels mind you!). all the info can be exported to excel for easy analysis...and every detail of each trade and every level is available. why hasn't anyone on here mentioned this software before??! good luck to all you pairs guys that are making money currently...but i highly suggest you check this software out.

Mike
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What is the pricing structure you got for Iris platform? When I checked with them a little while back, it was too much for a guy like me that is swing trading pairs while holding down a full time job.
 
mweather, I pay only $300 a month. considering market data is ~$150 per month on any system another $150 is totally acceptable to me for a platform as advanced as Iris. even that terrible sterling platform is like $200 a month...plus you have to pay the additional market data fees.

Mike
 
Quote from PairsGuy123:

ok..i asked if anyone had used this software the other day but didn't get any responses from those that have. I've now moved to a live account with interactive brokers using Iris and all i have to say is WOW. I have not seen scalping/ day trading signals made so clear since the early 2000s than off these Iris charts. Plus they show the entries and exits plotted right on them (up to 20 layers/levels mind you!). all the info can be exported to excel for easy analysis...and every detail of each trade and every level is available. why hasn't anyone on here mentioned this software before??! good luck to all you pairs guys that are making money currently...but i highly suggest you check this software out.

Mike
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Hey Mike,

since it is so amazing why not post some trades for all of us to behold! If I sound a little skeptical, well - I am. On a more serious note, I'm always interested in something new if it actually provides value and is not just another Sales Pitch.

I personally beat intra-day Pair Trading to death with some serious analysis tools for over a year. I basically determined that unless I wanted to go the HFT route that it wasn't a profitable strategy. Of course, I actually took into account things like slippage, commissions and the ability to borrow the stocks or ETFs.
 
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