Quote from Uselesstrader:
I have been day trading some pairs over the last month or so with a lot of success, excluding this weekI think that may just be the low volume leading up to the holidays that has hit me... or maybe not.
A lot of the complaints about day trading pairs seems to be commissions and slippage.
My comission is pretty close to zero (small credit when I add liquidity versus removing it) so it is barely even a factor. Not that level II windows are that useful anymore, but that combined with time and sales helps me exclude any pairs that will have any slippage for more than a penny, and even that is rare.
I am basically just doing mean reversion, but only in the early part of the day. If the spread is a little wider for the morning, just short the top stock and long the bottom stock and wait for it to close a little bit.
Is anyone else here doing anything similar on a similar timeframe?
Any thoughts (knowing that my commissions and slippage are very low) from anyone that has a strong reason not to trade like this?
Thanks all
Two subjects follow:
FIRST: I slipped into pairs trading in 2008 not even knowing it existed as a trading form. I had been day trading since early 2007 GS as the axe and Merill Lynch and Lehman as followers. I plotted all three on a normalized graph each day with their common starting point at the zero percent point on the left vertical axis. The chart was structured not by price but by percentage gain / loss (as would be obvious). I only traded GS and one of the others if they were both (the axe and the follower) above the 0 per cent line. When GS dipped to a level one-half percent below its most recent peak, I went LONG GS not giving a flying flip how much momentum it had downward. At that time, I also went SHORT one of the other stocks that was following. Invariably, GS would reverse to the up while the other stock continued to decline. I seldom experienced a loss on those trades ! The biggest short coming I had was when to close. It was more guess work when to close --which when you consider I almost always closed with a gain-- illustrates the merit of this style trading.....the sizable unbooked gain while in the trade had sizable margin for guess work approaching contemplation of closing the trade. This was short lived when Merill and Lehman blew up. I was on the hunt for a replacement......looking for another axe and followers. My point is (1) this is a powerful style of trading (I developed for myself) and was derived from my day trading DNA I still had in me from my robust day trading days of the later 1990's. (I did no trading whatsoever in anything for 8 years from 2000.) Again, I want to point this style out to you if you want to explore it. I would really, really, really love to do it again. If you are a day trader person, this is one to explore. Like what followed in my life (this was a self invention for myself) intuitively I figured others must be doing something like this ( ? )
SECOND: In my search for substitute stocks to GS LEH MER, I slipped into my next self discovery which was "inventing" pair trading, not knowing there was a universe of existing pair traders. It was a very different style for me, much more conservative, and much less time on the monitor, the latter I really appreciated. I subsequently discovered this thread and was tremendously excited. (I had just barely known that ET existed.) But what I inferred after reading a large number of posts is that trades, although not necessarily always day trading, were generally fairly short lasted. It appeared to me software lent itself to this as I also inferred. (I never subscribed to software.) I continued to trade through 2009 with my own style which was crude by comparison from the more sophisticated posters I was reading. My most compelling reason for staying with my style was the fact that I almost never experienced a loss out of 45 trades. (This does not include trades I went in and out of quickly because I did something wrong in clicking buttons carelessly. I eventually made myself a check list. Boring but effective.) To be honest, I was prejudiced to get out of all my trades with a gain because I wanted this to be the finding of the holy grail which chronically got me out prematurely. So one would not be impressed with absolute dollars made. (Although the annualized returns on the majority of trades were impressive. I had to use annualized measurement because I was frequently moving money in and out of that trading account.) What WAS impressive was where the trade I had gotten out of the vast majority of times would have gone two or three times better than my booked gain. Thank you, that was just as important to me as booking my little gains. It was 2009 as an acid test for rating this newly self-stylized trading that proved itself as safe and consistently successful. I had no compelling reason to the faster moving, software dependent trading that otherwise would have been available. I particularly like the SAFETY and the slow, leisurely pace of this style. I have learned discipline and my trades are consistently better than those early years for dollar measured gains. Without software, however, it is hunt and peck for the trades, but I find free resources offering pairs that I pick up on, examine, and many times use.
I have started a small group in which we are dedicated exclusively to this style and nominate to each other trades. It is the turtle in the race with hare for style when comparing the faster moving pair trading I see elsewhere. It offers the prospect of putting on a number of small trades simultaneously and easy to manage. Slow and disciplined keeps my heart rate down and frees up time for other things in life. Certainly, a faster moving trader can participate in learning this style (very small learning curve) and try some trades easy to manage while continuing his traditional style. At the end of many months doing this, one can easily be in a place to judge its merits in his trading life.