Statistical Arbitrage on Index Futs

1) Draw a daily line chart of the YM/ES spread
2) Draw RSI (2) of the spread
3) Draw 34 ema of the spread
3) Go long (buy YM/short ES) when RSI (2) goes below 10
4) Close position when spread touches 34 ema

Reverse the rules for shorting the spread (RSI(2) goes above 90)

Tips: If after buying the spread it keeps going down, I would add every day while RSI (2) is still below 10. My experience have shown that the spread keeps returning to its 34 ema like a clock work.
 
Also I am using my method not only on daily but on 30 min and higher time frames. (60, 120)
Lower time frames arent efficient due to slippage and commiss.
 
These work in all related stock indices. Dax/Eurostoxx is a favourite of mine.

Big divergences tend to happen most when a big stock in one index has news, and that stock is not in the other index (or has a much smaller weighting). Once I had Dax/Eurostoxx blowout huge on me - Nokia had a profit warning (it's in the Eurostoxx but not in the Dax).

So make sure you know the big index components that are not shared, and keep an eye on them - especially if earnings are out, or some news has come out. That way you can avoid some of the big blowouts. Also you can sometimes "feel" the blowouts coming, as one of them has a persistent bid (or offer) relative to the other. A final defence is not to hold on for too long - if your spread doesn't converge within a few mins, it's more likely to be bad, so cut your losses.

The thing I like about this approach is it has a defineable edge and limited risk. If you enter well, sometimes you don't even have to put on the spread, you can just immediately exit your entry for a quick scalp profit.
 
Quote from Sashe:

1) Draw a daily line chart of the YM/ES spread
2) Draw RSI (2) of the spread
3) Draw 34 ema of the spread
3) Go long (buy YM/short ES) when RSI (2) goes below 10
4) Close position when spread touches 34 ema

Reverse the rules for shorting the spread (RSI(2) goes above 90)

Tips: If after buying the spread it keeps going down, I would add every day while RSI (2) is still below 10. My experience have shown that the spread keeps returning to its 34 ema like a clock work.
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Interesting, I'll see how that charts later. I use rsi(2) in some of my swing trades, I like the setting very much for rsi. Was wondering, what kind of hit rate you getting running this? What kind of profit is the average expectancy?
 
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