What do you call this technique?

[shanemr]

Can somebody tell me the name of this specific trading style.

You divide the price of one instrument by another. If the resulting series of values stays in a fixed band. Then you know there is a relatively steady relationship between the instruments.

Then you can short or go long on a spread of these two instruments depending on what the current value of series creating by dividing the prices of the two instruments is.

My question is what would you call this style of trading? I am looking for more information on it. But I need to know what it is called so I can search for more information.

Regards,

Shane

 

[ns1000]

Sounds like pairs trading. You mean that if the relative value of two instruments goes out of kilter, you trade anticipating they'll fall back in line?

 

[shanemr]

More like the pair seem to stay in a band relative to each other. Imagine a bouncing ball.

So you know if it is at the top of the band it will likely move down and if it is at the bottom of the band. It will likely move up.

 

[ColinRiche]

yes thats relative pairs trading - some people call spread trading

you divide one by the other to determine position size for hedging
helpful when trading instruments of widely different prices so you are correctly hedged
good when using CFD's or shares

the other is differential spreads or pairs of similar price or multiple or where you dont mind being so accurate
used a lot with spreadbetting

but the 2 instruments must be correlated

been doing this sort of stuff for years