About the opportunity cost of holding a pair, we break down our trading system to trade 4 types of signals.
1. Very Short Term ( 1-2 Days or even Intra Day)
2. Short Term ( 3-7 Days )
3. Positional ( 5-20 Days )
4. Tracking the Structural Break
The days mentioned are working days, obviously. Now the time frame which is the highest is obviously the 4th one when a pair undergoes structural break. We obviously dont know the reason behind the structural break until very late ( when we read about it in media ). So the opportunity cost is highest in the 4th category.
1. Very Short Term ( 1-2 Days or even Intra Day)
2. Short Term ( 3-7 Days )
3. Positional ( 5-20 Days )
4. Tracking the Structural Break
The days mentioned are working days, obviously. Now the time frame which is the highest is obviously the 4th one when a pair undergoes structural break. We obviously dont know the reason behind the structural break until very late ( when we read about it in media ). So the opportunity cost is highest in the 4th category.
Take a look at Ranbaxy and Sun pharma. They dont really offer much of a trade on daily TF. But on small time frames like 10-30 min charts you can find prices tend to sway. The beauty of this pair is when you find a trade, you can always make money.
Another question out of curiosity... Do you trade pair with stop losses?
When im pair trading, I dont usually have stops, even mental. I just make sure I have enough margin and when i see some MTM losses on the board, I just swallow hard and sit tight. Mostly, they end up being profitable eventually.