Pairs Trading Stocks / Indexes

schoe

Well-known member
343 3
Can anybody tell me if there are any sites/advisory services/books on the best way to select/trade pairs of stocks one long and short taking profits when the difference between the two widens. (one long one short)

Thanks .
 

schoe

Well-known member
343 3
I currently use TC200 end of day software and am looking to trade pairs of US stocks or different indexes if I can find a good method. I note indexking posted some pairs trades on here for a while but seems to have disappeared to Spain!
 

Trader333

Moderator
8,502 881
In my view the best way to do this is to select a strong stock in strong sector and buy it and at the same time short a weak stock in a weak sector and it really is that simple. A good time to check for this would be around 6.50pm and I think that TC2000 should do this for you. Of course there is always the risk that both will reverse but that is trading for you. Generally though I have found that if you do this for a number of stocks and basket trade them overall it was profitable although I have never tried it in realtime.


Paul
 

ColinRiche

Well-known member
284 3
You really need a package that charts the relative like Sharescope and Sierra

Does TC2000 chart relatives ?
 

ColinRiche

Well-known member
284 3
The relative is simply one stock price divided by another and then shifted onto the normal stock chart
 

schoe

Well-known member
343 3
If I pair trade indices such as DOW/FTSE OF DAX/CAC is there a way of knowing what size stake to put on each index so that they are both balanced to take advantage of any short term divergence.
 

ColinRiche

Well-known member
284 3
Depends on what broker your using...

Also depends if your trading the relative or the differential

For Ftse/Dax i'd use equal size and for Ftse/Dow i'd use 2:1

What broker you using and whats there minimum contract size ?
 

2468steve

Experienced member
1,076 39
You make one single bet. As of tonight the spread with IG for example is FTSE/DAX 774-784 and FTSE/DOW 5078-5100.so with FTSE at approx 4200 and DOW 9300 diff is 5100.If you expect this diff to move closer you'd sell at 5078,or buy at 5100 if you expect the DOW to outperform
 

schoe

Well-known member
343 3
Thanks for the advice I am with Deal4Free I don't think they do the differential bet.How difficult is it to find a system to make profits pair trading it seems safer to me than trading just the one index so in theory you should be able to use higher stakes and close for a smaller point gain than you normally would seek?
 

ColinRiche

Well-known member
284 3
2468

But why would i want to get ripped off by IG

schoe

If your clever you pick your pair - open up one leg and then if you feel its going against you - you hegde

But the safe way for beginners is to open and close both at the same time
 

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