My Pair Trading Journal

[ullastp]

JUST AN OBSERVATION/FEEDBACK (individuals may or may not agree)! BUT this is generally followed everywhere!

never get into a pair trade when:

• result season is ON or one of the stock's result is pending!
• any one of the stock is at the mercy of FIIs (e.g. HDFC Bank)
• stocks not from the same sector and not closelt related in terms of business model (e.g nifty+gold). GULUGULU - dont get me otherwise on this. but still cudnt figure out wt ws the reason? ws it that all the criteria were matching in PTF?
• value terms are not matching. here if there is a difference, then one can buy stocks in cash to nullify deviations!

still there are many reasons. but i cud figure out the relevant ones over here. now the question ppl will ask is - the universe becomes small basis these above conditions & thus the opportunities. well IT IS! but u have to live with that specially in the mkt like india!

Yeah, you are right in the sense that if there are news/events in one stock, there is a risk in entering pair trade.

But as you people know, the divergence within a pair (that is needed for this strategy) can be caused by

1) Temporary supply/demand changes,
2) Large buy/sell (FII) orders for one security,
3) Reaction for important news about one of the companies (Earnings etc), and so on.

What I mean to say is in most of the times, this FII, Earning results helped these pair to converge from there divergence and made it again a perfect “PAIR”.

If you are looking,

BANKBARODA- PNB or
BANKINDIA- CANARABANK

Recent earning results and other news, helped these pairs back to its convergence zone or otherwise it would have write off from the pair trading book.

I think it’s better, small investors to stay away from entering pair, when there are events highlighted by Malgohft. Those who have enough money to average the position will make good profit in these scenarios.

Happy pair Trading!!!!

 

[malgohft]

these are the precise reasons why PAIR TRADING is more difficult then normal trading as you need to do several types of analysis not only for 1 stock but 2 stocks!! pairs may remain in divergence for weeks/months or even years..wt will you do when this situation arises? well the answer is SL...yeah pair trading also involves SL in terms of spread/ratio from its mean!!

also, patience & holding capacity/deep pockets are other reasons why retail should not try it until and unless they have identified top/bottom of spread/ratio (that too by luck or mistake)!!

Yeah, you are right in the sense that if there are news/events in one stock, there is a risk in entering pair trade.

But as you people know, the divergence within a pair (that is needed for this strategy) can be caused by

1) Temporary supply/demand changes,
2) Large buy/sell (FII) orders for one security,
3) Reaction for important news about one of the companies (Earnings etc), and so on.

What I mean to say is in most of the times, this FII, Earning results helped these pair to converge from there divergence and made it again a perfect PAIR.

If you are looking,

BANKBARODA- PNB or
BANKINDIA- CANARABANK

Recent earning results and other news, helped these pairs back to its convergence zone or otherwise it would have write off from the pair trading book.

I think its better, small investors to stay away from entering pair, when there are events highlighted by Malgohft. Those who have enough money to average the position will make good profit in these scenarios.

Happy pair Trading!!!!

JUST AN OBSERVATION/FEEDBACK (individuals may or may not agree)! BUT this is generally followed everywhere!

never get into a pair trade when:

• result season is ON or one of the stock's result is pending!
• any one of the stock is at the mercy of FIIs (e.g. HDFC Bank)
• stocks not from the same sector and not closelt related in terms of business model (e.g nifty+gold). GULUGULU - dont get me otherwise on this. but still cudnt figure out wt ws the reason? ws it that all the criteria were matching in PTF?
• value terms are not matching. here if there is a difference, then one can buy stocks in cash to nullify deviations!

still there are many reasons. but i cud figure out the relevant ones over here. now the question ppl will ask is - the universe becomes small basis these above conditions & thus the opportunities. well IT IS! but u have to live with that specially in the mkt like india!

 

[malgohft]

infact, now is the time to reverse the positions for next 7-10 days to get back the spread of 16 or more with a strict SL of 11.5 on a closing basis!

see a little wait of two more days would have given a spread of Rs. 2 more!! current spread is 12.3!!

extra 5000*2=10000 as opportunity lost!

Exited the LEADMINI-ZINCMINI Trade at a spread of 14.35, A profit of 2.2 point excluding rollover+brokerage. Not good looking at the huge time it took. So exited.

 

[GuluGulu]

Exiting Last position of HDFCBANK-KOTAKBANK Pair:

SELL HDFCBANK 500 @663.6
COVER KOTAKBANK 500 @ 672.6

Total Profit around 30,000/- in two positions. Slightly less.

 

[viharpatel]

exiting last position of hdfcbank-kotakbank pair:

Sell hdfcbank 500 @663.6
cover kotakbank 500 @ 672.6

total profit around 30,000/- in two positions. Slightly less.

nice profit

 

[GuluGulu]

Bought INFY 125 @ 2778
Sold HCLTECH 500 @ 699

 

[ullastp]

Exiting Last position of HDFCBANK-KOTAKBANK Pair:

SELL HDFCBANK 500 @663.6
COVER KOTAKBANK 500 @ 672.6

Total Profit around 30,000/- in two positions. Slightly less.

It's nice GuluGulu....

I'll close this pair when the price of HDFCBANK (666) cross KOTAKBANK(675)

 

[ullastp]

Bought INFY 125 @ 2778
Sold HCLTECH 500 @ 699

Take care, my suggestion is keep strict stop loss.

I have done TECHM & HCLTECH 2-3 months back (with HCLTECH short) and i felt HCLTECH very risky and actually speaking i escaped that trade with a small loss.

 

[GuluGulu]

It's nice GuluGulu....

I'll close this pair when the price of HDFCBANK (666) cross KOTAKBANK(675)

Ulla,

Half-Life for this pair is around 70 days. So it take longer to get to that point. Well, it can even come quicker...no problem.

But technically, I exited because got decent profit, and now it is better to find opportunity in another pair.

I shall also try to enter it again, but in the last 3-4 days, both went straight in one direction. So, waiting for a favorable Fibonacci pullback, at least 38% in each of them. If that happens jointly, I shall enter again....if by that time, better pair is not available.

GG

 

[ullastp]

It's nice GuluGulu....

I'll close this pair when the price of HDFCBANK (666) cross KOTAKBANK(675)

Closed all positions in HDFCBANK-KOTAKBANK Pair

Closed 2 lot HDFCBANK @ 670.70
Closed 2 lot KOTAKBANK @ 669.00

Net Profit: 41,700/-