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My Pair Trading Journal

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  #1  
Old 8th January 2013, 12:18 PM
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Default My Pair Trading Journal

These days I am concentrating my focus on market neutral Arbitrage Strategy. Planning to post my own trades regularly at this thread.

Today done the following trade:

Bought AXISBANK JAN FUT 1lot @ 1362.75
Sold YESBANK JAN FUT 1lot @ 501.65

Reason: STDev= 2.7,
Correlation: 72% Rising
Cointegration: 93%

Profit Target at STDev= 1


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  #2  
Old 8th January 2013, 12:36 PM
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Default Re: My Pair Trading Journal

Quote:
Originally Posted by GuluGulu View Post
These days I am concentrating my focus on market neutral Arbitrage Strategy. Planning to post my own trades regularly at this thread.

Today done the following trade:

Bought AXISBANK JAN FUT 1lot @ 1362.75
Sold YESBANK JAN FUT 1lot @ 501.65

Reason: STDev= 2.7,
Correlation: 72% Rising
Cointegration: 93%

Profit Target at STDev= 1
thanks gulugulu for starting a thread on pair trading

very less material is available on this subject

from your earlier post it shows u have quite experience in pair trading

we hope to benifit from u in a long way

in the mean time if u could explain the strategy of finding pair and how to find corelation,cointegration etc,it will be immence help to all

thanks and happy trading
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  #3  
Old 8th January 2013, 12:37 PM
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Default Re: My Pair Trading Journal

why did you buy axisbank and sell yesbank, and not the opposite?
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Old 8th January 2013, 01:01 PM
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Default Re: My Pair Trading Journal

Quote:
Originally Posted by augubhai View Post
why did you buy axisbank and sell yesbank, and not the opposite?
Hello

Good question as both can be done

My view

This is playing for convergence, i.e. using reversion to mean (the current SD of 2.7 and target of 1, as mentioned in the first post)

Pair trading can also be done for divergence, i.e assuming that the trend of price deviation between the pairs will continue further.

Thanks
(I will also like to read the OPs answers to this question)
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  #5  
Old 8th January 2013, 01:07 PM
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Default Re: My Pair Trading Journal

Quote:
Originally Posted by gurmy. View Post
thanks gulugulu for starting a thread on pair trading

very less material is available on this subject

from your earlier post it shows u have quite experience in pair trading

we hope to benifit from u in a long way

in the mean time if u could explain the strategy of finding pair and how to find corelation,cointegration etc,it will be immence help to all

thanks and happy trading
Read basics here

http://en.wikipedia.org/wiki/Pairs_trade

http://www.investopedia.com/articles...#axzz2HMq0gaxA

http://epchan.blogspot.in/2006/11/co...t-same-as.html



and the last one useful only if u understand the maths/calculas or whatever these equations are

http://www.yats.com/doc/cointegration-en.html

Last edited by PartTime_Trader; 8th January 2013 at 01:14 PM.
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  #6  
Old 8th January 2013, 01:54 PM
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Default Re: My Pair Trading Journal

i use a ratio spread on bollinger band with trendline usage!
hws this way of trading pair trading?

btw in ur case/method cn u give an example thru calculation & chart if possible - so that we can understand who u do it?

Quote:
Originally Posted by GuluGulu View Post
These days I am concentrating my focus on market neutral Arbitrage Strategy. Planning to post my own trades regularly at this thread.

Today done the following trade:

Bought AXISBANK JAN FUT 1lot @ 1362.75
Sold YESBANK JAN FUT 1lot @ 501.65

Reason: STDev= 2.7,
Correlation: 72% Rising
Cointegration: 93%

Profit Target at STDev= 1
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  #7  
Old 8th January 2013, 03:12 PM
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Default Re: My Pair Trading Journal

Attached are two charts of Axisbank-Yesbank Pair from Pairtrade Finder software that I use.





In the first image, you can see I have only those pairs populated that has above 90% Co-integration and above 70% Correlation. And today this pair crossed the 2.7 Standard Deviation from mean.

Arbitrage or Pairs trading believes on historical data and assumes that at some point of time, the pair will revert back to their historical mean, i.e. 0 STDev.

At the same time, look into the following two pictures of axisbank and yesbank. They are 5 min chart.





If you look at the first Axis chart, you will see, Axis retraced 50% Fib level when I took the trade and Yes bank is sitting at top; expecting at least 23.6% Fib level correction here as the Pair is highly correlated and cointegrated.

Also, in the 2nd picture, you can see the correlation graph is rising. It is very important that you take trade with a rising correlation.

The above pair can diverge much further from 2.7STDev, in that case, I may add another position at around -20,000 M2M

As of writing this, it has a miniscule profit of around 2000/-. When it will reach STDev 1, one can expect around 40-50K Profit.

I am also watching all other pairs shown in the first pic.
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Old 8th January 2013, 04:03 PM
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Default Re: My Pair Trading Journal

Thanks GuluGulu for starting this Statistical Arbitrage Trading journal
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  #9  
Old 9th January 2013, 12:26 AM
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Default Re: My Pair Trading Journal

thks gulugulu!

couple of queries:
  1. do u pair trade on daily TF based calculations or intraday too?
  2. if i dont use pairtradefinder, can you post the excel calculations (involving cointegration, correlation & standard deviation) if any so that i can do it manually!

Quote:
Originally Posted by GuluGulu View Post
In the first image, you can see I have only those pairs populated that has above 90% Co-integration and above 70% Correlation. And today this pair crossed the 2.7 Standard Deviation from mean.

Also, in the 2nd picture, you can see the correlation graph is rising. It is very important that you take trade with a rising correlation.

The above pair can diverge much further from 2.7STDev, in that case, I may add another position at around -20,000 M2M
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  #10  
Old 9th January 2013, 09:57 AM
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Default Re: My Pair Trading Journal

Quote:
Originally Posted by malgohft View Post
thks gulugulu!

couple of queries:
  1. do u pair trade on daily TF based calculations or intraday too?
  2. if i dont use pairtradefinder, can you post the excel calculations (involving cointegration, correlation & standard deviation) if any so that i can do it manually!
Hi Mal,

Well, Pair trading is done on daily basis as you may have to hold a pair for 1 to 3 months - Intraday can be traded but a bit tricky and need very sophisticated calculations.

PairTrade Finder is ideal software for it. You can download it free for a 30-day trial period.

I have little tried Excel sheets for Pair Trading...Many do...I have heard, but don't know much about those Excel sheets.

BTW; today morning, the above Pair is showing M2M Loss.

Its on daily time frame, so you will have to observe those M2M loss without taking any intraday bad decision.

Currently I am running 5 pairs with total 58K M2M Loss... I have 23L capital deployed in the market.

Cheers,

May God Bless all of us,

Warm Regards,
GG

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