Balancing the Pair

[TheBramble]

{I brought this up in another thread yesterday, but it got lost in the traffic. As a newbie to PT I'm puzzled by this one}


If you have a pair trade in place (oscillatory market conditions) and you exit one of the pair either because it hits target or stoploss - what do you do with the other trade?

My guess is you exit in order to maintain a market neutral state (object of the play?)?

OR do you decide based on the single remaining trade's current performance what to do with it?

 

[darrenf]

My guess is you exit in order to maintain a market neutral state (object of the play?)?

Also as a novice with pair trading, I would agree this is the logical approach to take.

However, I will leave it to those more experienced to provide a full answer.

 

[BBB]

I'm not experienced at all in this strategy, but if the remaining leg was in profit, and looked to be continuing, why cut you profit? Let it run for as long as you can. I can't see any reason why I'd want to cut a profit short.

If it's doing anything though, then I guess cutting it makes sense.