Pairs Trading Strategy Model

Quote from anacott_steel:

what kind of risk parameters do you guys use for pairs? how much heat do you take, and when do you add on to your pairs?
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Steel

Steel,
I totally depends on YOUR risk tolerance. How much are you willing to risk? I make my living trading, so I can't afford ANY sort of extended draw down. I trade each pair using different parameters. I'll add to a position if I am comfortable with the trade. Any other ?'s you can pm me.
good luck
Homer
 
we are holding positions ten days - rather long I guess. we are doing this on sixty pairs at any one time. I see your point on volume, yet I do not see too much difference compared to jan or feb.
we experienced a seven day streak of loss - spells real pain.

I am considering to add short term intraday trading soon. did very short frames suffer the same?


peace
 
man,
I trade mostly on an intraday basis. The last few months have been the most difficult months that I have seen but I have still been profitable. unfortunately decimalization, lack of volume, lack of volatility, and the loss of the daytraders have really hurt my margins. It has been difficult to cover my costs but it has forced me to be more patient and nimble.
Homer
 
Be careful with adding to a position and holding it for days (unless it's a small position). I've seen many people losing months profit when something abnormal happens overnight (and over several days). Don't confuse good trading with luck and random events.

I'm trading pairs myself and adding intraday in spreads I'm cofortable with, but never holding it overnight. You'll never know what's gonna happen. Many lost big in fre/fnm last september and pvn/cof in 2001.
 
Man,
I look at about 10-20 pairs currently. At any one time i'll either be flat or have up to 5 to 10 trades on. These numbers vary based on how things are going. Like I said before, it's rough out there so I am trading extremely defensively right now. Quick and nimble. How have you been doing??

Homer
 
we started that strategy in december, made 2% in dec, another 2% in jan, then started good in feb, but lost all we made this year within the last week of feb. since then basically flat, leaving us somehow flat for the year.
we think it is due to a lack of dispersion, thus stocks are volatile but all very similar. this seems to be a bad environment for us.

we consider developing something on intraday pairs. first i would like to test out some extremly similar pairs like fre-fnm or some banks or oil companies.


peace
 
Quote from man:

we started that strategy in december, made 2% in dec, another 2% in jan, then started good in feb, but lost all we made this year within the last week of feb. since then basically flat, leaving us somehow flat for the year.
we think it is due to a lack of dispersion, thus stocks are volatile but all very similar. this seems to be a bad environment for us.

we consider developing something on intraday pairs. first i would like to test out some extremly similar pairs like fre-fnm or some banks or oil companies.


peace
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I am not a big fan of trading listed pairs. The specialists have way too much latitude on handling your orders. You will get filled on on one side AFTER you try canceling your order because the other side has moved. I think the specialists are playing the game too, except they are the house. Execution isn't a big deal if you have a longer time frame, but it's essential for intraday trades. It can be profitable but I have found the profits aren't worth the hassle of dealing with the specialists in my opinion (in this market).
But to each their own
Good Luck,
Homer
 
Quote from Homer:



I am not a big fan of trading listed pairs. The specialists have way too much latitude on handling your orders. You will get filled on on one side AFTER you try canceling your order because the other side has moved. I think the specialists are playing the game too, except they are the house. Execution isn't a big deal if you have a longer time frame, but it's essential for intraday trades. It can be profitable but I have found the profits aren't worth the hassle of dealing with the specialists in my opinion (in this market).
But to each their own
Good Luck,
Homer
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Do you trade trending spreads (go with the trend)? It's my impression that nasdaq spreads trend a lot more than listed pairs. Just an impression, i haven't conducted any research on nasdaq spreads, i only trade listed spreads.
 
Large Capital Listed pairs are the only way to survive and make a living trading pairs. I've learned the hard, expensive way!

Use #1-#4 (by capitalization) within an industry. Plot the 'spread' carefully, go with the 'side' of the spread to return to the center/average (short-term).

And so on. It works, I've made a reasonable living for almost a year once I 'blew-out' my account several times trying.
 
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