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; As I promised 2 weeks ago in the thread ''Trading UK shares for a living'' im going to start a ...

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Old Jan 29, 2009, 1:44pm   #1
 
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Pairs Trading UK & US Stocks Journal

As I promised 2 weeks ago in the thread ''Trading UK shares for a living'' im going to start a journal detailing my trades and show that it can be done. Ive been inspired by a similar trading journal on another forum with the trader doing very well and actually getting better results with the help of other members, so in the interest of creating something useful and informative im going to document my analysis and trades here, where I hope to improve aswell and maybe I can build a proven track record that I can later use. My style is pair trading UK & US stocks, I use a combination of brokers - Interactive Brokers & IG markets to execute my trades, use a pair trading program for buy and sell signals and I have strict money management guidelines. I mostly stick to a rules-based trading system but use a little discretion. Currently on my radar, I have 72 NYSE stock pairs & 44 LSE stock pairs that are highly correlated and from various industries. I will list all my entry & exit prices during the market day or after market close.
Wish me luck
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Old Jan 29, 2009, 2:33pm   #2
 
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stocktrader77 started this thread Trade entered; UK stock pair SMDR vs DGO, two oil & gas exploration & production companies, correlation is high at 91% and the ratio chart is almost at a 200 day high.

Long Entry SMDR - 106.00

Short Entry DGO - 159.50
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Old Jan 29, 2009, 9:09pm   #3
 
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That's absolutely brilliant Maybe I can use this as empirical evidence in my dissertation. I was intending to write about the long/short strategy. Good luck to you, I hope you bucket loads
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Old Jan 29, 2009, 11:41pm   #4
 
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Originally Posted by mhp123 View Post
That's absolutely brilliant Maybe I can use this as empirical evidence in my dissertation. I was intending to write about the long/short strategy. Good luck to you, I hope you bucket loads
Thanks, yes by all means use this as evidence in your thesis. Are you a student? Maybe you can prove all those efficient market theory professor's their wrong!
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Old Jan 30, 2009, 12:33pm   #5
 
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lol, let's hope so. I'm studying Economics, final year.
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Old Jan 30, 2009, 1:57pm   #6
 
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stocktrader77 started this thread Just thought id post a quick explanation of pair trading to those of you who don't know what it is;

The pairs trade was developed in the late 1980s by quantitative analysts and pioneered by Gerald Bamberger while at Morgan Stanley. With the help of others at Morgan Stanley at the time, including Nunzio Tartaglia, Bamberger found that certain securities, often competitors in the same sector, were correlated in their day-to-day price movements. When the correlation broke down, i.e. one stock traded up while the other traded down, they would sell the outperforming stock and buy the underperforming one, betting that the "spread" between the two would eventually converge.

The pairs trade helps to hedge sector and market risk. For example, if the market as a whole crashes and your two stocks plummet along with it, you should experience a gain on the short position and a negating loss on the long position, leaving your profit close to zero in spite of the large move. In a pairs trade, you are not making a bet on the direction of the stocks in absolute terms, but on the direction of the stocks relative to each other.

Pairs trade - Wikipedia, the free encyclopedia
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Old Jan 31, 2009, 2:39am   #7
 
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stocktrader77 started this thread Entered a trade on the NYSE, two shipping companies Overseas Shipholding Group Inc. (OSG) & Teekay Tankers Ltd. (TNK). I can see the ratio chart approaching the support zone plus there is a divergence between the RSI & ratio chart and high correlation at 94.71%

Long Entry OSG - 35.76

Short Entry TNK - 11.81
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