Hi all,
I was recently reading through "Professional Stock Trading" (which I have found to be an excellent book), and was quite taken by the pairs trading chapter. I generally prefer to swing trade, on a 2 to 20 day basis, so I was trying to rework the system from intraday to multi-day.
My first question is, is this strategy even feasible on a longer scale than intraday? I can see some arguments that might suggest it couldn't be, but I haven't been able to convince myself.
If indeed it is feasible, then I am having a somewhat difficult time determining how to make my spread calculation make sense. On an intraday basis, you simply reset the spread to 0 at the close of each trade, and trade appropriately the next day. But for a longer time frame, your spread period would seem to need to be longer, as suggested in the book. (5 days)
But when using a 5 day period (for instance), and oddity arises. Let's say we start a system on day 1. On day 2, we create the spread comparing the current price to the close of day 1. On day 3, we compare the last price again to day 1. On so on. The comparison days would be
Day 1 compare to day 1
2 -> 1
3 -> 1
4 -> 1
5 -> 1
6 -> ???
But on day 6, to what day should the comparison be made? Since we have a five day period, it is time to shift. But moving the comparison to day 5 (6 -> 5) ruins the continuity of the spread calculation. Simliarly, calculating like this makes little sense either:
6->1
7->2
8->3
9->4 , etc.
I am completely new to this idea, so any help would be appreciated. I'm sure I'm misunderstanding something, but I've searched around quite a bit, and haven't had any luck.
Thanks,
fs
I was recently reading through "Professional Stock Trading" (which I have found to be an excellent book), and was quite taken by the pairs trading chapter. I generally prefer to swing trade, on a 2 to 20 day basis, so I was trying to rework the system from intraday to multi-day.
My first question is, is this strategy even feasible on a longer scale than intraday? I can see some arguments that might suggest it couldn't be, but I haven't been able to convince myself.
If indeed it is feasible, then I am having a somewhat difficult time determining how to make my spread calculation make sense. On an intraday basis, you simply reset the spread to 0 at the close of each trade, and trade appropriately the next day. But for a longer time frame, your spread period would seem to need to be longer, as suggested in the book. (5 days)
But when using a 5 day period (for instance), and oddity arises. Let's say we start a system on day 1. On day 2, we create the spread comparing the current price to the close of day 1. On day 3, we compare the last price again to day 1. On so on. The comparison days would be
Day 1 compare to day 1
2 -> 1
3 -> 1
4 -> 1
5 -> 1
6 -> ???
But on day 6, to what day should the comparison be made? Since we have a five day period, it is time to shift. But moving the comparison to day 5 (6 -> 5) ruins the continuity of the spread calculation. Simliarly, calculating like this makes little sense either:
6->1
7->2
8->3
9->4 , etc.
I am completely new to this idea, so any help would be appreciated. I'm sure I'm misunderstanding something, but I've searched around quite a bit, and haven't had any luck.
Thanks,
fs
