The ACD Method
- Thread starter sbrowne126
- Start date
Thank you very much Maverick, that explanation was very helpful.
I've read a lot about trading correlated or cointegrated pairs but I never thought about it as a volatility position, but after reading your post it makes a lot of sense. I can see how betting on the convergence of diverging pairs becomes very similar to writing options against trending instruments or trying to pick a top and a bottom at the same time. Really risky indeed.
Happy Thanksgiving to you all, I'm learning a lot here and I'm very thankful for it.
I've read a lot about trading correlated or cointegrated pairs but I never thought about it as a volatility position, but after reading your post it makes a lot of sense. I can see how betting on the convergence of diverging pairs becomes very similar to writing options against trending instruments or trying to pick a top and a bottom at the same time. Really risky indeed.
Happy Thanksgiving to you all, I'm learning a lot here and I'm very thankful for it.
Don Bright and I have had some interesting chats on here about the pros and cons of pair trading. Don has spent quite a bit of time teaching that method to his traders. I of course played devil's advocate in those conversations so the reader can get both sides of the topic.
If you are going to trade mean reversion, the more money, the better. It's really ideal for large hedge funds and banks, not small traders with 20k in capital.
AUD/USD is looking played out from my perspective for this month. It is showing a little strength now at an area where I would expect the downtrend to fail for the time being. If today can close above the daily A level I am interested in a long on Monday if we get further strength.
Anybody watching Gold here? Seemed like the gold was moving in concert with other risk assets in the past couple months. The relationship with the ES is breaking down and I think we might see some strength going into the next couple months.
We'll wait and see and let the levels play out in the beginning of the next cycle!
We'll wait and see and let the levels play out in the beginning of the next cycle!
I see I got somebody interested in spreads.
Aussie did show some relative strength today. I find initiating trades the last week of the month to be very tricky though. All you can really lean on are the weekly signals.
Quote from Maverick74:
I see I got somebody interested in spreads.
From somebody who is already interested in spreads...What do you think of using ACD directly on the spread value, rather than using ACD on the "strong asset" then spreading it off a "weak" asset?
So, instead of saying "oil is the strongest risk asset, so I'll go long CL short ES", you set up several spread combinations (CL/ES, HG/ES, CL1/CL2, Corn calendars, etc.) and calculating their own opening ranges and A levels?