Pairs Trading Strategy Model

I find that it does still "work" around the opening of NYSE stocks, but in general, I consider the strategy akin to smoking crack. The highs and lows are probably worse with stocks, and you may need more and better drugs to get cured from it than crack.

At least, you can't go to jail for doing it.
 
It's been a while sense I heard from anyone. You're right...pairs have been VERY hard in the last quarter. Unreal trending going on. Of course, much of pairs is fading price action, so for those who do that it's been tough. I've never seen anything like it really.

Let's try to be more vocal.

-- ss
 
hi sslavin.
Could you please elaborate on what you mean by unreal trending lately. I interpret it as "pair trading is harder these days since the trends don't revert to mean " and since pair traders generally fade the trends, the "unreal trending " would tend to hurt the strategy.

Thanks.
 
Guys,

Well...I'm not sure where Don is on this situation. I really don't think Bright has ever said it's a core strategy. Maybe that was true for one quarter here or there, but I seldom hear anything from anyone from the Bright camp on this issue.

Trading volume in general has been up for July compared to many months past. I know Bright vol was up too, but since they're a private company I don't think you'll ever get acurate data on this from them. Nor the numbers that pair trade.

You're right on the assessment of how hard or "unreal" the trading's been. Everything is trending after the first hour more than it chops. And if it chops it's in 30c ranges and you usually can't get the other side on to make it easy to take this range all the time. Very frustrating. Ones like AIGHIG100, CATDE100, APCAPA120, MWDMER100 and others are tough to predict to say the least. Of course, you look back on 5-10 days worth of data and say "duh" but it's seldom that obvious in the seat. Not too long ago (last year) you could take these pairs for 30 trades and 30-50 cents all day long, now you're lucky to get 5 shots where you feel like you have an edge intraday.

Now...from a longer time frame, this work might be easier. I'd definitely say stick to the trend, form a bias, add 1 extra leg from time to time, but be very careful out there. More pairs the better.

I do think this next quarter will provide our best shot this year at more normal behavior as traders come back from vacation, the war is essentially behind us, and the economy is trying to pick up. We'll see.

Are you experiencing the same thing?

-- ss
 
Fortunately, I trade big enough that my rebates made me some money. But I'm only making a few thousand a month after all is said and done. I'm up 4 out of 5 days, then some freak takes out the week's gains. Been doing that for months. It's a far cry from me making $30 and $40 grand a month over the last half of last year...litterally.

Clearly, part of my issue is discipline. What worked last year doesn't work this year. Moves are slower, it's trendy as hell, carryover's are mixed, fills are worse, but still...discipline and preparation should smooth out the performance. I'm getting better, but it's still not what it was.

I've got to isolate my playing to the pairs that I know are more range bound. My universe is about 28 pairs. I trade at least 15 of those a day. 5 of those I likely shouldn't. That's my next focus.

Have a good one.

-- ss
 
Yeah... I guess. I have 10 monitors in front of me. 4 for pairs. 4 for one sided analysis, and two for order entry. 4 computers total. You don't need to have all this, I've just morphed into it over the years.

My in and outs are all technical based. Looking for logical sup/resist, and scanning for gaps on my pairs -- visually mostly.

It works for me, but not for others. I can usually have at least 10 pairs going at one time when the market's rockin. I usually have $1MM to $2MM on at one time (at least I used to -- haven't lately). I've tried to train others to do the same, but many can't multi-task that much. You gotta start small and work up, but you'd be amazed at how quickly to you can trade a lot of pairs at one time on an intraday basis.

Got to do my prep work for the day...trade or die!

-- ss
 
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