Pairs Trading Strategy Model

Originally posted by arbtrader
At what point do you cut your losses if it keeps moving against you? Anyone who pair trades care to comment?
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I analyze it from a risk/reward perspective, i.e., if I expect the spread to revert to the mean 67% of the time, then I'll implement a stop loss that is equal to the reward of the spread. So, size of loss equals size of win, but if you win 2 out of 3 times, then you're golden.

MC
 
Originally posted by Mark Conway


I analyze it from a risk/reward perspective, i.e., if I expect the spread to revert to the mean 67% of the time, then I'll implement a stop loss that is equal to the reward of the spread. So, size of loss equals size of win, but if you win 2 out of 3 times, then you're golden.

MC
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Hi Mark,

How do you find the spreads you use and how do you determine the percentage number?

Al
 
Originally posted by Neutral_Al



Hi Mark,

How do you find the spreads you use and how do you determine the percentage number?

Al
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Al you do a pretty good job yourself of finding spreads (e.g. FO/ITT).

How do you find the spreads? Last time you told me correlation...is there something more?

Royce
 
market topology used to be a good place to find pairs but they started charging for the site. a good way to find pairs is get a list of all the stocks in the s&p 500 that do over a million shares note the sector for each symbol. then overlay the stocks in the same sector on a chart to see how they track. go back a few years and check the range for the spread.
 
Originally posted by trendsetter
market topology used to be a good place to find pairs but they started charging for the site. a good way to find pairs is get a list of all the stocks in the s&p 500 that do over a million shares note the sector for each symbol. then overlay the stocks in the same sector on a chart to see how they track. go back a few years and check the range for the spread.
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are you using a website for charting?

I've been using Yahoo, and also

http://stockcharts.com/charts/performance/


thanks :cool:
 
Originally posted by royce09


Al you do a pretty good job yourself of finding spreads (e.g. FO/ITT).

How do you find the spreads? Last time you told me correlation...is there something more?

Royce
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Hi Royce,

Currently I am testing several systems. All of them are based on correlation analysis. However, some of the constrains are different. For example, FO/ITT and FDC/GWW belong to the "flat" 40dma system. Something like DLX/ODP is more trendy but has better risk parameters on a longer term. The reason I ask people questions is because in order to come up with a great system I need as much help as I can get. Any idea is welcome...

Al
 
Originally posted by Neutral_Al
Hi all,

I did open a position on 9/20/02 at the open R=1.104. So far it is a loosing trade. I decided to hold it over the weekend...
Al
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Closed FNM/FRE today at R=1.137 with 3% gain. Could not wait any longer. It is still quite far from 40dma. Working on my timing...

Al
 
Originally posted by Neutral_Al


Closed FNM/FRE today at R=1.137 with 3% gain. Could not wait any longer. It is still quite far from 40dma. Working on my timing...

Al
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WTG!!

I got in earlier than you I think - I don't have the stomach for that ride...

Congrats,

nitro
 
Closed FNM/FRE today at R=1.137 with 3% gain. Could not wait any longer. It is still quite far from 40dma. Working on my timing...
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how long you been in this position?
i look @ pairtrading.com performance-they far away from my results....

http://www.angelfire.com/de3/options/TRADES.HTM

looks like they put at least 20000 on each side to get 500-1000 profit. man..........you can make it easy on nasdaq in intraday.
imagine, where i would be, if unstead 2500-5000 on each side i put 20000)))))))))))heh....
one big drop on news will kick you out for month, if not forever.
i been trying to hold some positions overnight-it's nightmare.
 
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