Pair Trading Strategy Journal

Quote from bathrobe:

Hi, you might want to be careful saying this on a public forum.
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Thank you for your concern. The following is the extent of my concern:

My non-paid advisories have no monetary value to me . An advisory has the equivalent definition of a "a thoughtful consideration." Should one craft a trade after being exposed to an advisory I stated, I take no monetary gain for the gain booked. Should a trade book a loss, I can take no loss for the same reason. As an ET poster, I stand to neither gain nor lose from the trader's experience. A trader seeking recourse will find my liability has the same value as the advisory, namely nothing. I watch CNBC with very wise and very experienced guests being proponents for specific trades they propose. I am certain they are aware their audience is public.

I have no more liability than advising one to consider making money in the market: stock, art, cattle, etc. I have nothing to gain or loose should one move the ball along and trade in that arena and experience gains or losses. Readers of my posts are neither clients nor customers.
 
Quote from CoolTraderDude on Spread Trading Strategies thread related to current CVX XOM trade...But unless I'm missing something this trade isn't really going his way and he's looking to average in another position...
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Without the benefit of you reading my posts last year since August 12, 2012, in the thread Pair Trading Strategy Journal, I understand your comment (above).

(reference Aug 12, 2012)
http://www.elitetrader.com/vb/showthread.php?s=&postid=3596885#post3596885
The link at that post is not as good as this one:
http://www.elitetrader.com/vb/showthread.php?s=&postid=3586686#post3586686


My style of pair trading, however, relishes what I have experienced in this CVX XOM trade. Additional Layers are where the bigger gains are found. I made that comment on chart 5, perhaps you missed.

http://www.elitetrader.com/vb/showthread.php?s=&postid=3763098#post3763098


Understanding this should be intuitively understandable, but I have my own verbose manners of description, including the provocative "standing in front of an on-coming locomotive" often when I start a trade AND being fully prepared for the "trade to open such that it goes against me as per normal for me 3/4 or so of the time." These expressions manifest my sentiment of willing to play against the momentum. But such play is done with pre-trade calculation.

The following is a narrative of mine explaining the mis-use of the term "averaging down" when describing adding Layers to a pairs trade.

http://www.elitetrader.com/vb/showthread.php?s=&postid=3629724&highlight=average#post3629724


The following uses a chart describing a trade I did last year with Layers:

http://www.elitetrader.com/vb/showthread.php?s=&postid=3630794&highlight=average#post3630794


I do mix the MACRO swing trade with MICRO short term trades as sub-sets of the swing trade. (An egg inside of an egg inside of an egg.) Regardless of the scalping trades, the additional layers have sufficient merit to stand by themselves without needing to have those scalping trades in between Layers which are just frosting on the cake. And I certainly wouldn't clutter my ET postings of charts of the MACRO swing trade and its additional Layers by annotating my sometimes numerous MICRO trades in between.
 
CVX Short
XOM Long

Chart 7

Any just installed 2nd layer (advisory a few days ago) made favorable move quickly. Link to chart is below. It now allows for the choice to close both layers, netting about break even. One can reduce the level of commitment to the trade by removing trading capital from it. Why ? See next paragraph.

Aggressive traders should consider staying in the trade, but understand the relative, inherent, fundamental difference between these two companies that will be a headwind to this trade going forward. On this thread, read my Mar 21 post why CVX is probably stronger than XOM FUNDAMENTALLY, if you are into that.

XOM however, may be undervalued for its potential considering it may "catch up" with its historical pay-out ratio (dividends), currently below its par. And it has raised dividends every year for three decades. If earnings go up (we are approaching earnings report season), XOM may kick in a boost to dividends, which in turn may be a boost to lift stock price. pattern. But you have to have longer patience than many pair trades last.

I seldom get into this "fundamental" element, but I choose to now because CVX has been on a terror upward.

The upward movement of both stocks early in the session rolled over downward with the market when the Dutch made a comment about Monday's Cypress resolution probably becoming the template for future European bank resolutions (smashing uninsured depositors with taking large per centage of their money away). If this sentiment scares Europeans (think Italy, Spain, Portugal), the mattress map appear more appealing than the bank, and depositors may be quick to pull money out of banks depending on degree of their pucker factor with the next "problem bank" or "country economy" negative headlines. Europe is our biggest trading partner, and bank runs would not be kool for either continent.

Chart is at...
http://www.elitetrader.com/vb/showthread.php?s=&postid=3767555#post3767555
 
Quote from deucy28:

Thank you for your concern. The following is the extent of my concern:

My non-paid advisories have no monetary value to me . An advisory has the equivalent definition of a "a thoughtful consideration." Should one craft a trade after being exposed to an advisory I stated, I take no monetary gain for the gain booked. Should a trade book a loss, I can take no loss for the same reason. As an ET poster, I stand to neither gain nor lose from the trader's experience. A trader seeking recourse will find my liability has the same value as the advisory, namely nothing. I watch CNBC with very wise and very experienced guests being proponents for specific trades they propose. I am certain they are aware their audience is public.

I have no more liability than advising one to consider making money in the market: stock, art, cattle, etc. I have nothing to gain or loose should one move the ball along and trade in that arena and experience gains or losses. Readers of my posts are neither clients nor customers.
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Deucy, posting pairs trades with no self-interest in anybody else's results does not mean readers should listen to you.

For there to be motivation or even reason, there must be self-interest, and your apparent theme is that you have none therefore you should follow me? Idiotic. I disagree that managing opm should not receive compensation then I tell those people to watch the news 24/7 on newswires build models for 10 years then tell me that I'm not extremely more qualified than the numb nuts novice traders I have seen try to trade stocks with absolutely no experience and never mind that they never had to ride a subway and a bus to work before!

Without the self-interest, there's no reason to follow other than for amusement, and nobody should take action with any of your recommendations either because just as you may be taking the trades we don't know if you're taking the trades so even then still no self-interest and this pair journal goes on without the correlation ratios high enough to warrant pairs positions.

Incidentally though fundamentally XOM is better than CVX, but the levels aren't really good for XOM so it's better just to short CVX and I'd wager your correlation is less than 0.9.

I guess I've confused people with the 0.9 thing. If the two pairs appear positively correlated, the correlation must be greater than 0.9 to have an effective pairs model, and if they're negatively correlated, the correlation must be less than -0.9 to be effective. At least on the daily scale. I don't see pairs trades as intraday models, so swing trading with them on daily charts is what I use to calculate the correlation.
 
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