Pairs Trading Strategy Model

[thetraderprofit]

I'm wondering why this thread seemed to die out in July.
Most of the pair traders I know lost lots of money in the past few months.

 

[stock777]

Quote from thetraderprofit:

I'm wondering why this thread seemed to die out in July.
Most of the pair traders I know lost lots of money in the past few months.

How is that possible. I thought pairs trading was a no brainer. Just read this thread and you'll see where there must be some mistake. Maybe they were trading pear futures by mistake.

 

[nkhoi]

Quote from stock777:



Maybe they were trading pear futures by mistake.

ROFL, hoho

 

[big_jdez]

This thread has been resurrected more often than a cat with nine lives.

 

[ChrisM]

Quote from big_jdez:

This thread has been resurrected more often than a cat with nine lives.

Because whole idea brings hope for easier trading.

 

[MrDinky]

I ran across this article from January

http://www.blumontcapital.com/downloads/press_room/012003_HirschGambles.pdf

From the article:
"She has a proportionally greater short position in Four Seasons than her long position in Fairmont."

Even at a 1/1 ratio, all I can say is... ouch!

 

[TMTrader]

Quote from ChrisM:



Because whole idea brings hope for easier trading.

Hope? Which system is that?

 

[ChrisM]

Quote from TMTrader:



Hope? Which system is that?

Whole idea of pairs trading.

 

[nitro]

Quote from ChrisM:



Whole idea of pairs trading.

Hardly.

A property of many observed time series, call the series Y, appear to be non-stationary. For example, a simple form of non-stationarity arises when the first differences of a series are white noise. In this case we say the series is integrated of order one, I(1), and the differences: delta(Y) ~ I(0).

An important step in the statistical analysis of integrated series was the realization that is also possible for a linear combination of I(1) variables to be I(0). The variables are then said to cointegrate.

it is not that pairs trading does not "work anymore," it is that too many smart people are doing it now.

nitro

 

[ChrisM]

Quote from nitro:


Hardly.


it is not that pairs trading does not work "anymore," it is that too many smart people are doing it now.

nitro

...which is the case of all "not working anymore" strategies e.g. trading systems.
Trading is a business like any other, once competition in particular strategy is too high, the margins do not cover expenses.