I've tried trading pairs both as mean reversion and trending. My research and experience tell me that mean reversion is the way to go (I only trade highly correlated stocks, not anti-correlated). I put on one unit, add one unit, take off one unit etc, trading only the same pairs every day and keep at least one unit 70% of the time. I only trade NYSE except for one Nasdaq pair. In my opninion Nasdaq pairs are not suited for pair, at least intraday.
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Pairs Trading Strategy Model
- Thread starter Neutral_Al
- Start date
Quote from Hurricane:
Pasternak,
FD and MAY have a correlation of 93%, so presumably this is one that could have (might have) met your requirements. Would you handle a sudden change in spread/ratio as an opportunity to put on another leg or just wait it out and see what happens?
No way I would trade FD MAY at all, in my opinion it's too volatile. Several dollars a week is more than my stomach can handle..... I prefer low volatile spreads, FD MAY is a wild beast.
I've never looked at it before now, but there's not enough "ebb and flow" in the pair for me to trade it when looking at a 5 mins chart. Actually the pair seems to trend a little bit, but i guess still difficult to trade that way. I don't trade retail at all.
So, I don't know what to do in that situation. I usually scale in every 10 cents, wait 5-50 mins, take one unit off etc. Of course, sometimes I end up in a trending spread that day, but then try to adjust by offloading long or short position according to the market (S&P).
I'm still learning (done this for two years - never had a down month), the market changes from month to month. The NYSE prints are less frequent now, that's why i scale in and out.
Quote from reg:
Pig, er Hog,
Thanks for your deep insight, but it really was of no value to me.
Reg, er the sheep
not only can you not think for yourself since you look for the easy way out- i.e. someone else doing all the work and telling you what trades to take on your 100-lots , you are a smart ass too- you're going to go real far in this business, buddy.
You've got something working then.I'm still learning (done this for two years - never had a down month), the market changes from month to month. The NYSE prints are less frequent now, that's why i scale in and out.
What wrong with trading FD/May with a small amount of shares if it's more volatile than what you're used to?
Quote from BOSS_HOG:
Reg, er the sheep
not only can you not think for yourself since you look for the easy way out- i.e. someone else doing all the work and telling you what trades to take on your 100-lots , you are a smart ass too- you're going to go real far in this business, buddy.
Great insight again Boss Pig. Very profound words indeed.
Don't bother to reply since you're now in my ignore list.
Have a great life and don't get slaughtered.
I have a question, gentleman. the correlation between FNM FRE is quite extraordinary. I once looked at five minute data and that was still correlated at 0.65 or something. Now my question is: where does this correlation come from? it must be some kind program trading, but how do these people handle the spread divergence from time to time?
peace
peace