Pairs Trading

Has anyone thought of this? PSQ the ETF that represents a short position in the QQQQ's. Short the PSQ which really gives you a long position but you are short so you receive short interest. Then short the QQQQ's to hedge, and now you are paired and hedged and receive short interest on both sides of the pair and pay no long interest. And with the lower volume and activity in PSQ there should be arbitrage opportunities to take advantage of between the PSQ and QQQQ's while you are receiving double the short interest and paying no long interest. Doesn't this look too easy??
 
Quote from jcstylin:

Just wondering if there are a lot of people out there that do pairs trading. Is it profitable? Can it be done on a intra day basis and what type of profits would be reasonable to expect. I hear it is rather complex trading strategy with a lot of math involved. Any information would be helpful, just wondering if this is something worth exploring.

Thanks!
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There is definitely a lot of potential in trading pairs intraday, I would even say more potential that trading a longer time-frame. And there are a wide variety of strategies one can form a methodology around. The key is, as others mentioned, there is considerable amount of homework that needs to be done.

What's contributed to my success is a lot of trial and error, finding discoveries and then implementing the necessary change (some big, some small) in my methodology - day by day, week by week. BUT! I cannot stress this enough, you have to put the work in - all the best pair traders that i've spoken with are constantly working on their edge, by spending the time during non-market hours taking notes, doing journals, researching their pairs, ect.

And of course there is risk involved. You have to be discplined and have a Written plan with specific money management parameters. I could give you ample stories of pair traders that were consistently profitable until they suffered a 50-75% drawdown one day. Because trading pairs is just like any other trading vechicle, if you don't have the proper mindset you won't succeed.
 
Quote from sandy1:

I day trade pairs very successfully using a Tradestation Plugin from:

www.daytradepairs.com

Its is a very simple but powerful indicator. Its has alerts that tell you when to get into a trade as well as when to get out. It even comes with a list of 25 pairs that are highly correlated and have heavy volume. The developer answers emails very fast to any questions you might have. Its is sold directly from the website or on Ebay. The ratings and comments on Ebay are very positive.
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I love how he gives a few examples that worked, but nothing resembling a true backtest of ALL THE PLAYS. Hey, for 50 bucks, what can you expect.
 
Yes, backtesting would be nice, but we all know that anyone can optimize the data to get any results you want. Do you really believe backtesting results posted on a website??

All I know is that I have been using this system for a couple months and I am making about $300-$500 a day, trading 500 share long and 500 share short positions. I follow 30 pairs every day and close out my positions EVERY day on the close. I average 9 trades per day. I would say I make money on 4 trades, break even on 3, and get stopped out of 2 (the plug-in had a built in stop alert).

If anyone is interested, I will email the developer and ask him if he would start a thread discussing his approach.

Sandy


Quote from stock777:

I love how he gives a few examples that worked, but nothing resembling a true backtest of ALL THE PLAYS. Hey, for 50 bucks, what can you expect.
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I do this sometimes ... both in stocks and futures

intraday ... if I pick my spots right ... it is easy money

however if "order flow" comes in and I am not careful
it is an easy way to get squeezed out for a loss

:p
 
Quote from daytrademargin:

That's what I meant. Thank you for correcting me.
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Hahaha slight difference....just because succesfully trading pairs is beyond your level of comprehension, don't bring your hating game into this thread.
 
Quote from GGSAE:

There is definitely a lot of potential in trading pairs intraday, I would even say more potential that trading a longer time-frame. And there are a wide variety of strategies one can form a methodology around. The key is, as others mentioned, there is considerable amount of homework that needs to be done.

What's contributed to my success is a lot of trial and error, finding discoveries and then implementing the necessary change (some big, some small) in my methodology - day by day, week by week. BUT! I cannot stress this enough, you have to put the work in - all the best pair traders that i've spoken with are constantly working on their edge, by spending the time during non-market hours taking notes, doing journals, researching their pairs, ect.

And of course there is risk involved. You have to be discplined and have a Written plan with specific money management parameters. I could give you ample stories of pair traders that were consistently profitable until they suffered a 50-75% drawdown one day. Because trading pairs is just like any other trading vechicle, if you don't have the proper mindset you won't succeed.
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Can you explain your methodology a bit? I have studied pairs trading but still can't get past this fact: The result of the correlation between any 2 random variables (stocks) is still random, only with different frequency of oscillation and standard deviation.

Is there an optimal correlation coefficient that you have found that leaves enough spread for a positive reward/risk?

I haven't found it, so that's why I'm asking.
 
Quote from sandy1:

Yes, backtesting would be nice, but we all know that anyone can optimize the data to get any results you want. Do you really believe backtesting results posted on a website??

All I know is that I have been using this system for a couple months and I am making about $300-$500 a day, trading 500 share long and 500 share short positions. I follow 30 pairs every day and close out my positions EVERY day on the close. I average 9 trades per day. I would say I make money on 4 trades, break even on 3, and get stopped out of 2 (the plug-in had a built in stop alert).

If anyone is interested, I will email the developer and ask him if he would start a thread discussing his approach.

Sandy
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Sandy... you're only successful 44% of the time. Have you tried dividing your capital in half and trading the first half long, and using the rest for delta hedging? I've backtested that and found it immensely more successful than attemting to reduce risk with pairs.
 
Don wrote:

We use our own determining factors in our daily/weekly analysis, in lieu of having to worry about delta/gamma/beta/theta, and all the rest, which apply to derivatives of course.
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Of course. I use my own determining factors in my analysis of your bs.
 
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