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Spread Trading Strategies
- Thread starter bone
- Start date
Quote from Shanb:
Question to bone or the other spreaders in here. Do you find it more effective to time entries exits based off of the underlying instruments or the spread itself? I do most of my trading based off the driver of my pairs and it works but I'm always looking for other perspectives
What are the "drivers of my pairs" mean ? What are the drivers you are referring to ? Tech Analysis ? Amount of spread ? Any of the many software platforms out there for pairs ?
Quote from deucy28:
My question is "What does the plot you illustrated represent ?" I see you are using two stocks, but I only see on plot.
Ok cool I can elaborate. XLK is a tech sector etf...the plot represents the spread between the XLK and the SPY. I am expecting XLK to continue to outperform SPY.
I do trades like this all the time...in different environments the spreads between sectors and the broader market tend to behave very differently. Divergence trading is money right now!
Quote from deucy28:
What are the "drivers of my pairs" mean ? What are the drivers you are referring to ? Tech Analysis ? Amount of spread ? Any of the many software platforms out there for pairs ?
I trade sector Etfs and tend to spread a sector versus an index. Like XLE against SPY. If I wanted to be short the spread I would be looking for a short entry in XLE and put on the spread as a result of the signal in the underlying (xle). You tend to get in a little late this way but the move is usually a go at this point.
Let me know if this makes sense!
IMHO, it's much more difficult to do this than to trade outright spreads. For a variety of reasons. End result is that it rarely makes sense, unless, of course, you're actually trading a vol spread.Quote from cdcaveman:
Are any of you guys using synthetic positions with options to trade pairs??
My Z$2c...
Quote from cdcaveman:
A good solid macro sell off and everything will converge. Soon to come! Good and
seperated pairs that have good corrolation will perform well in a sell off no?
In my experience regime changes don't tend to just come on abruptly. In a low vol trending environment, correlations tend to continue to unwind and divergence rules. Only when you get a rise in correlations and vol do you get a good fading type environment. Everything looks fine for now as I haven't seen correlations tighten up. When it happens I will change my style...simple.