Pairs Trading Strategy Model

My average holding period for a pairs trade last year was 3.1 days. Lots of day trades and some I got stuck in for a long period of time. I would probably do better if I was more patient but it wouldn't be as exciting.
 
Quote from Hurricane:

Neutral Al,

For your trades in which you have gotten stopped out, have you ever gone back to see how the pair performed longer term? I've had a few loosers that ultimately would have been winners had I hung on and plenty of times I've recovered from a loss and sold at breakeven only to see shortly afterwards that I should have hung on.
More...


Hi jrweiner,

I do go back to look at the pairs after I got stepped out. Some of them improve, some loose even more. Trying to analyze what would have happened if I stuck with a loosing position for a little longer is a pointless and psychologically damaging job. You have to embrace your loses if you have a statistically favorable model. Each loss means that your have more gains ahead.
You also have to have discipline. If you do not have a set stop loss, you are a trader no more. You become an investor, most likely an unsuccessful one.
Professional traders say that you have to love your losses more than you love your gains. It is liberating. It dissolves your ego. You realize that the Market is not about being right, it is about making money.
The bottom line: Any system should have a preset exit points (profit objective and stop loss). Otherwise it is not a system, it's a collection of waisted broker's fees.

Al
 
Quote from Neutral_Al:

A lot of my pairs that exhibited extreme oversold/ overbought conditions in Nov. and Dec. are now converging; makes me think that we are approaching an important top. I ran some stats: the highest number of extreme pairs occurs in the middle of a trend. They tend to converge the most at the tops and bottoms.

Al [/B]
More...

I wrote this message on Jan 14, 2002. The S&P 500 closed at 931.66 that day. That was the highest close since Dec.02. Today we finished at 861.40.
Now we can safely say that Jan14, 2002 was an important top.
The reason I am pointing this out today is not to brag, but to suggest that pairs behavior could be predictive of the market direction. Not that we care about it as pairs traders...
I closed MU/ ALTR today at R=0.7500 into MU weakness (opened R=0.6950). 7.9% gain in 10 days.
I am eyeballing AMR/CAL and AMR/DAL now. They look unbelievably oversold. Technically it is a great trade. However, I am not sure about AMR's fundamentals. Are they going bust? Any thoughts?

Al
 
I have a very small AMR/DAL trade going now. Before this latest decline, DAL had a nice runup while AMR didn't budge much so I'm down a bit right now but holding on. Prior to UAL's bankrupcy and for a time after, UAL was still trading close to AMR's current level so I'm hopeful that the worst is over for the short term. DAL is fundamentally better off than a few of the other majors but I wouldn't call their outlook rosy. So rather than thinking AMR will have a near term recovery, I'm thinking the gap will close with DAL declining.
 
man,


About Europe, - Continental Europe has much greater volatility - and fewer stocks-so harder to find correlations.
In London Banks hire Phd's to find the pairs- they dont share info- you just see the adverts for Phd's in the press. Remember we are 5 hours forward and 5 years behind. I am more attracted to US stocks to find tight channel trading for pairs. I dont have the resources to data mine in Europe.
One point - does anyone else increase stake as R moves away from the mean ? I do on low beta trades. But am I guilty of averaging down ( chasing my losses).
I suppose the proof is in the pudding and so if it works do it- but I would never do it on large movements - any thoughts ?
Perugino
 
what software platform do you all use for pairs trading (execution) ?? we currently use rediplus, which is very user friendly and allows you to customize many features. We keep many montages up to quickly execute trades in many different stocks that we use in our pair trading model. We are thinking of switching over to the hammer, what do you guys think of that platform as pair traders??? any other platforms that you are using that work well for pair trading????
 
Does anyone use charting software that has alerts for pair trades??? I currently use Qcharts and it's alerts only work for individual stocks. I am looking for a better alternative than to conditionally format my excel spreadsheet, which really sucks up the juice on my computer. Any input would be appreciated
Homer
 
Try linnsoft.com. , aspenresearch, maybe neoticker and first alert. With linsoft you can create a custom instrument which then looks, acts just like a regular stock. i.e. You can set alarms to it, apply indicators to it,etc
good luck
 
Thanks GAT
I'll give it a try
I have used some more sophisticated software that will easily handle pair alerts, but it slows my box down to much to use it
 
You must log in or register to reply here.
Back
Top