Pair Trading

[pasha]

Well, something new to learn!
What are the probabilities of both trades going the wrong way?
ie the bought stock goes down and the sold stock going up.

 

[ivanboesky]

Possible, very possible... Hence the need to check all aspects of the pair before entering the trade.... and also setting stop losses to limit your downside, in case things do go wrong.
Nothing in the markets is a sure thing. If it were, wouldnt we all be millionaires by now?

 

[nautilus]

Well, something new to learn!
What are the probabilities of both trades going the wrong way?
ie the bought stock goes down and the sold stock going up.

Hi Pasha:

I believe that the first of pillar of any trading strategy should always assume "market perversity" and it is very elegantly stated by Murphy's Law which states that - Anything that is going to go wrong will always go wrong!

Hence one always must have plan B to counteract this basic law of market perversity - which is risk management - this becomes the second pillar of any trading strategy!!

Regards

Nautilus

 

[MasterRaistlin]

Hello,

I'm new to the forums and have been doing searches here on pairs trading. I came across this thread where you've been discussing a few methods you discovered and your success. I've been working on intraday pairs trading of equities for a few months and have been struggling to find a method that's consistently reliable. I don't expect you to lay it all out for me, but I was curious if anyone could point me in the right direction or lend me your insight.

Thanks

 

[equityraiser]

I've done pair trading for 2 years using automated trading systems to catch the anomalies between 2 underlying symbols. It is sure almost no risk investment when it's done the appropriate way, but the profits made are so thin that it didn't deserve the amount of work involved( you're sure to make 10 % a year for example, but is it enough ). I'm talking about fast trading systems. Only big traders can find an advantage in it.

http://www.equitydream.com

 

[scorpio155]

I did try this once and had a good outcome for two days only.I was really happy thinking that I have done some real great stuff, everyday I shall get about 1000 Rs using this stratergy. The next day, both the stocks went the other direction and had to cut my losses. -- the stocks were of high volatilty.

One thing that I thought that can be tried -- in a market uptread -- go long in the stock which has high beta and go short in the stock which has low beta. (so the hedge here will be less)

Still need to test more on these, but again as mentioned, there will not be great profits here, as one acts as a hedge to the other.

 

[virat]

Excellent way to save yourself from huge losses of F&I directed Indian stock market.. Probably this is the best way you will earn both ways in a volatile market.....

 

[CreditViolet]

Hello All
Interesting to see people interested in Pairs Trading. I have a model using spread b/w correlated/cointegrated pairs for the same purpose.Its currently lying dormant though as its capital and effort intensive and I am busy with other strategies.Will post a few examples and its working in the TA forum whenever I get time.

CV

 

[ivanboesky]

Good to see a lot of people trading pairs. Its a low risk strategy as far as you keep the portfolio as market neutral as you can, and have a good risk management strategy to fall back on.

 

[rkkarnani]

Trying to revive Pair Trading thread!!! Seems a lot of interest being generated by a few arbiteugers and even Trading Houses also in Pairs trading, mainly in trading two stocks from the same sector.
Request members in the know to give some directional posts.
Regards.