Pairs Trading Strategy Model

Tradestation is limited in what it can do with pairs. You can plot both symbols on the chart and create an indicator which is the spread between the two. They have an included indicator spread difference and one for ratio. If you want to beable to create a custom spread, say .7 wmt to 1 fd, you'll have to modify the indicator yourself.
 
Anyone recommend a blog/journal website centered around tradeable pairs listed from a broad spectrum of industry groups?

Somebody must have a trading blog on the web for pairs trading.

Then again, this thread seems to have completely died.

Trying to add to the usual suspects:

HD/LOW
INTC/AMD
CVX/XOM
 
Quote from Bruto Blukowski:

Anyone recommend a blog/journal website centered around tradeable pairs listed from a broad spectrum of industry groups?
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How can something be centered around something else? Anyway, there is a reason you seldom hear about pairs trading, and it is the same reason this thread is long dead. It does not work.
 
Quote from Bruto Blukowski:

Thanks for the self-centered double vote of bunk and negativity.
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Sorry to burst your bubble, but there is no edge in pairs trading. There has not been in a very long time. The purveyors of pairs trading books and software, along with the brokerages who charge double commissions, they would all like you to think otherwise. It has nothing to do with having a negative attitude.
 
Quote from segv:

Sorry to burst your bubble, but there is no edge in pairs trading. There has not been in a very long time. The purveyors of pairs trading books and software, along with the brokerages who charge double commissions, they would all like you to think otherwise. It has nothing to do with having a negative attitude.
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Actually... you are 100% wrong.
Your speech would apply to TA, though.

Pairs and basket trading is so profitable ** if done right **...
(And it's not easy to do it well)...
That no one will talk about it in detail...
It's like "throwing pearls before swine."

You have to be BOTH a great quant... and a great trader.
 
Quote from HoundDogOne:

Actually... you are 100% wrong.
Your speech would apply to TA, though.

Pairs and basket trading is so profitable ** if done right **...
(And it's not easy to do it well)...
That no one will talk about it in detail...
It's like "throwing pearls before swine."

You have to be BOTH a great quant... and a great trader.
More...

I am going to go out on a very long limb here and say that you have no idea what you are talking about. No one will talk about stat arb in detail?

Inference and Arbitrage: The Impact of Statistical Arbitrage on Stock Prices Tobias Adrian MIT

Testing Market Efficiency using Statistical Arbitrage with Applications to Momentum and Value Strategies S. Hogana, R. Jarrowb, M. Teoc*, M. Warachkad 2003

The Cointegration Alpha: Enhanced Index Tracking and Long-Short Equity Market Neutral Strategies ISMA Discussion Papers in Finance 2002

Cointegration and Asset Allocation: A New Active Hedge fund Strategy Carol Alexander 2001

A Computational Methodology for Modelling the Dynamics of Statistical Arbitrage Andrew Neil Burgess 1999 Phd thesis

Statistical Arbitrage and Securities Prices" Oleg Bondarenko University of Illinois at Chicago

High Frequency Pairs Trading with U.S. Treasury Securities: Risks and Rewards for Hedge Funds Purnendu Nath London Business School 2003

I have over 100 papers on the subject going back to 1988. Yes sir, there is definitely a lot of money still on the table here.
 
Quote from segv:

I am going to go out on a very long limb here and say that you have no idea what you are talking about. No one will talk about stat arb in detail?

Inference and Arbitrage: The Impact of Statistical Arbitrage on Stock Prices Tobias Adrian MIT

Testing Market Efficiency using Statistical Arbitrage with Applications to Momentum and Value Strategies S. Hogana, R. Jarrowb, M. Teoc*, M. Warachkad 2003

The Cointegration Alpha: Enhanced Index Tracking and Long-Short Equity Market Neutral Strategies ISMA Discussion Papers in Finance 2002

Cointegration and Asset Allocation: A New Active Hedge fund Strategy Carol Alexander 2001

A Computational Methodology for Modelling the Dynamics of Statistical Arbitrage Andrew Neil Burgess 1999 Phd thesis

Statistical Arbitrage and Securities Prices" Oleg Bondarenko University of Illinois at Chicago

High Frequency Pairs Trading with U.S. Treasury Securities: Risks and Rewards for Hedge Funds Purnendu Nath London Business School 2003

I have over 100 papers on the subject going back to 1988. Yes sir, there is definitely a lot of money still on the table here.
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You are going out on a "very long limb here"...
Because I make a very good living pairs/basket trading for 14 years...
And profits lost through decimalization have been made up through low costs and higher volume...
And the changes in the last few months have had little impact on quants...
In fact, may still end up being a net plus.

And at the heart of the Bright operation is a strong focus on this...
In fact, the web site pairstrading.com = Bright Vancouver office.

The fact that you can find a bunch of academics to address an issue is a Big Yawn...
They are amateurs.

Try getting pro traders to talk about it.

Look at this thread.
90 pages and 110,000 views...
And virtually no useful, specific information on this area.
That's what I mean.

Getting this kind of approach to work is a matter of trial and error and experience...
And expert application is everything...
Meaning (a) proprietary software and (b) expert traders.

Other than basic concepts...
You cannot get this out of a book...
Or run off-the-shelf software...
You have to invent and build and create and constantly tweak over the years.

I could come up with literally dozens, if not 100s, of workable groups of stock to trade/hedge...
Some would work better than others...
But I have more than enough action to keep me busy for the foreseeable future.

Even is I posted a 10 page exact explanation in detail of what I do...
Maybe 1% of the people here could duplicate what I do...
And it would take that 1% at least 6-12 months to be up and running.

But because the basic idea is always that you are arbing less efficient areas of the markets...
Certain niches regularly get saturated and cease to be profitable...
So, in that sense, your point is correct.

For example...
I traded convertibles very profitably for 2 years 2000-1...
But since the convertible niche got hammered by the tech meltdown in 2002...
And the energy meltdown in 2003...
It's not very tradeable... and I have long since moved on.

Staying ahead of the curve here is paramount...
And that requires ongoing creativity.
 
I started doing pairs trading last year and I wrote about my strategy on my blog last june. Scroll down and you will see my trading idea. Also there are links to www.market-topology.com. and www.spdrindex.com/correlation.

I like subsectors of XLE and XLF for this type of strategy. I don't currently use this strategy, but think I may go back to it because it keeps you trading in the right direction and if you stick to a scalping approach with this strategy you are less likely to have big losing days when you do make trading errors.

Here is my blog with the pairs strategy idea:
http://highprobability.blogspot.com/2006_06_01_archive.html

#1 trade- in the direction of the VWAP for ES futures contract
#2 trade- in the direction of the VWAP of the sector your trading
#3 trade-scalp slow to catch up stocks following your sector in the direction of the VWAP
#4-dont buy on nyse tick highs or short on nyse tick lows
 
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