Pairs Trading Strategy Model

Quote from man:

... arguing

some have the backtest implemented within the fastest computer on earth ...
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Man,

this is not really arguing. We are just old friends.
 
Quote from ChrisM:



Man,

this is not really arguing. We are just old friends.
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Ooops,

I can see the error. I answered to DT saying "Man" (i.e. Yo` Man !) and here is misunderstanding. Sorry Man,
 
Quote from ChrisM:

there is no "maybe" in trading. If you had good, backtested trading plan the profits come from statistics.
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Ups I think it's another misunderstanding. You should say "there is no maybe in pairs trading".
This is arbitrage, where profits are more related to statistics. Directional trading is less related. Correct me if I'm wrong - I've never made any pairs-trading.
 
Chris
I saw you did not mean to talk to me. I just wanted to prevent what I was afraid could turn out as the old backtest-or-not discussion. Sorry for being impolite, I was not aware you knew each other.


peace
 
Quote from DT-waw:



Ups I think it's another misunderstanding. You should say "there is no maybe in pairs trading".
This is arbitrage, where profits are more related to statistics. Directional trading is less related. Correct me if I'm wrong - I've never made any pairs-trading.
More...

Actually my belief is that whole trading is statistics related (more or less). But therm "statistics" covers large area.
 
Quote from man:

Chris
I saw you did not mean to talk to me. I just wanted to prevent what I was afraid could turn out as the old backtest-or-not discussion. Sorry for being impolite, I was not aware you knew each other.


peace
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Just misunderstanding. And you were OK. No appologies necessary.
 
It may look good on paper. In real trading two things are crucial in such strategies, IMO:

1) Correlation changes over time
2) Commission & slippage costs x2 higher vs directional trading (can be a problem mainly in intraday pairs trading)

Does pairs trading have any advantages (in terms of return/risk ratio) over directional trading? I doubt it.

It would be a good idea to include pairs-trading systems for diversification purposes.

The whole idea is to profit from market's over-reaction (or inefficiency). Traditional trading systems try to profit from exact same thing, by using profit targets for example.

Nothing new. I'm boring... :D
 
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