Pairs Trading UK & US Stocks Journal

This is a discussion on Pairs Trading UK & US Stocks Journal within the Trading Journals forums, part of the Reception category; I use direct equities and CFD's. Risk management is 25% of my account, for example $100,000 account = have no ...

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Old Feb 5, 2009, 2:05pm   #17
 
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stocktrader77 started this thread I use direct equities and CFD's. Risk management is 25% of my account, for example $100,000 account = have no more than $25,000 exposure in any one position. We don't use stop losses for pair trading, risk is mitigated through staying market neutral, spread out risk and prudent position sizing, only close a position on an exit signal which occurs when the pair comes back to its mean, profit or loss. stops actually decrease performance and your a sitting duck if you use them, for the brokers, market makers, day traders and other shady operators.
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Old Feb 5, 2009, 3:25pm   #18
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Hi stocktrader77,
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Originally Posted by stocktrader77 View Post
. . . We don't use stop losses for pair trading, risk is mitigated through staying market neutral, spread out risk and prudent position sizing, only close a position on an exit signal which occurs when the pair comes back to its mean, profit or loss.
What happens if the pair continue to diverge, rather than to revert back to the mean? Do you literally sit tight and pray that there hasn't been a seismic shift in the funnymentals causing a split in the correlation of the pair? I guess what I'm trying to say is that, without stops in place on every trade, are you not running the risk that sooner or later you're going to be taken out by a black swan event?

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stops actually decrease performance and your a sitting duck if you use them, for the brokers, market makers, day traders and other shady operators.
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Old Feb 6, 2009, 12:08am   #19
 
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stocktrader77 started this thread yes every now and then you find yourself in an ugly trade, thats just trading, having small positions relative to your account size is the key to mitigate black swan event risk. I have nothing against day traders, I use to be one myself, I was just saying they know where the majority of stops lye and they will gun for them, ive seen it in the flesh, but if someone can trade successfully with stops, kudos to them.
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Old Feb 6, 2009, 1:51am   #20
 
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stocktrader77 started this thread Entered two new trades

Long Entry BEZ - 13.01

Short Entry AIMC - 7.25
-------------------------------
Long Entry CMCSA - 13.74

Short Entry SJR - 16.51

Both are US pairs.
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aimc-bez.jpg  
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Old Feb 6, 2009, 8:57pm   #21
 
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stocky, thanks for all that , IE screen shot and so on..
I guess it is more like a swing strategy..
But
-did you ever got in and out of a trade in a day ?
-how do you take your profit ? in % ? in $? other ?
-do you average ? i mean you go long and short one day and then you ad long / short a day or 2 latter ?
-do you scale in ?
-do you scale out ?

thanks

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Old Feb 6, 2009, 9:17pm   #22
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Can you go into more detail about the maths of your trades?

How are you determining the correlations, how you consider a divergence significant to trade? That kind of thing...

Great thread.
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Old Feb 7, 2009, 12:04am   #23
 
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Quote:
Originally Posted by imex68 View Post
stocky, thanks for all that , IE screen shot and so on..
I guess it is more like a swing strategy..
But
-did you ever got in and out of a trade in a day ?
-how do you take your profit ? in % ? in $? other ?
-do you average ? i mean you go long and short one day and then you ad long / short a day or 2 latter ?
-do you scale in ?
-do you scale out ?
Yes Im swing trading pairs, don't like day trading anymore its a very slim margin game. I close positions when a exit signal is triggered by the software. Currently I don't scale into my trades, just 1 layer does me fine.
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Old Feb 7, 2009, 12:45am   #24
 
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Quote:
Originally Posted by MrGecko View Post
Can you go into more detail about the maths of your trades?

How are you determining the correlations, how you consider a divergence significant to trade? That kind of thing...

Great thread.
I don't do any math or determine correlations, etc.....Ive got software to do that for me, I simply follow the entry and exit signals and focus on staying consistent and keeping the risk spread out. I set my standard deviation at 2.00, i.e.......I get entry signals when a pair diverge's 2 stdev from its mean, also I only watch pairs above 80% correlation.
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