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pairs trading
- Thread starter renegade trader
- Start date
Quote from mschey:
Thank you for my daily dose of SPAM.....I just love the stuff...and can never get enough.
Definition of SPAM is:
"Spamming is the abuse of electronic messaging systems to indiscriminately send unsolicited bulk messages. While the most widely recognized form of spam is e-mail spam, the term is applied to similar abuses in other media: instant messaging spam, Usenet newsgroup spam, Web search engine spam, spam in blogs, mobile phone messaging spam, internet forum spam and junk fax transmissions"
My post cleary isn't spam as it is on topic and solicited as someone was asking about pair trading.
Thank You.
I haven't been trading pairs since 02/03 so i can't compare.
However, as Mike said, pairs trading has gotten very trendy, which many would classify as more difficult. I'd be interested in hearing what you were doing before that made you successful and what wasn't working that caused you to stop.
However, as Mike said, pairs trading has gotten very trendy, which many would classify as more difficult. I'd be interested in hearing what you were doing before that made you successful and what wasn't working that caused you to stop.
trading pairs = relative value. One manager/trader understands all companies within one sector are going from a-g while at trading at disparity with one another, historically speaking, they all tend to move back towards the mean. So, a good trader who rigorously follows his companies, will most likely be able to catch the top in the overvalued=sell, while buying the bottom in the undervalued or the laggard, to collect the interim spread disparity between the two companies within the same sector. This long/short strategy is labeled market neutral since you are long and short within the same sector, your market risk is supposed to be smaller. As mschey said, this could bleed you badly if you are not careful. If you have a smaller name which is making leaps and bounds and you decide to short that one, then you buy the company which is larger and lagging, the one you bought decides it will purchase the high flyer, the spread will widen -long/+short and you will most likely die. hope this helps the pair trading head scratchers.
Quote from PARACLESE:
trading pairs = relative value. One manager/trader understands all companies within one sector are going from a-g while at trading at disparity with one another, historically speaking, they all tend to move back towards the mean. So, a good trader who rigorously follows his companies, will most likely be able to catch the top in the overvalued=sell, while buying the bottom in the undervalued or the laggard, to collect the interim spread disparity between the two companies within the same sector. This long/short strategy is labeled market neutral since you are long and short within the same sector, your market risk is supposed to be smaller. As mschey said, this could bleed you badly if you are not careful. If you have a smaller name which is making leaps and bounds and you decide to short that one, then you buy the company which is larger and lagging, the one you bought decides it will purchase the high flyer, the spread will widen -long/+short and you will most likely die. hope this helps the pair trading head scratchers.
In the room that I sit, there are 500 pairs being traded by 3 Bright's. This goes on all during the trading day. We also spend, at minimum, 40 man hours (women hours actually, LOL) per week doing research, analyzing, and correcting any disparities and looking for potential problems. We have developed dozens of new criteria over the last couple of years that has really helped.
We avoid being short the (much) smaller company which avoids buy-outs for the most part.
Market risk is smaller, but certainly not eliminated, nothing is risk-free in trading.
All I'm saying is that it takes a lot of work to manage a large portfolio of pairs. I might add that trading the "noise" pays off for quite a number of traders, then they go home flat or nearly flat.
Just one of several strategies, and our pairs guys have put a lot of effort into developing the elaborate data bases to support the traders. No free lunch.
All the best,
Don
Quote from gtgtgt3:
Definition of SPAM is:
"Spamming is the abuse of electronic messaging systems to indiscriminately send unsolicited bulk messages. While the most widely recognized form of spam is e-mail spam, the term is applied to similar abuses in other media: instant messaging spam, Usenet newsgroup spam, Web search engine spam, spam in blogs, mobile phone messaging spam, internet forum spam and junk fax transmissions"
My post cleary isn't spam as it is on topic and solicited as someone was asking about pair trading.
Thank You.
It's SPAM....that so called website is nothing but an offer to Sell your Tradestation indicator.
The poster was asking about the current state of pairs trading.
No Don....with your portfolio pairs strategy, I'm sure you have quit bit to add.
There's some more info on pairs trading on this thread from a few months back...
http://elitetrader.com/vb/showthread.php?s=&threadid=92018
http://elitetrader.com/vb/showthread.php?s=&threadid=92018