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jonnysharp
Registered: May 2004
Posts: 980 |
09-02-08 12:54 AM
yobo ive done some simple testing on the forecast function and I didn't find anything of predicitive value, however as GGSAE suggests a combination of different measurements might work.
Hey Emilo at what point of stdev would you take a loss if you've entered at 2stdev, do you take a loss if nothing has changed(no news released) it seems others here will scale into the pair if it deviates more.
Interested to hear how other pair traders trade management, do you guys have equal $ amounts on each side, or beta adjust, or any other risk controls.
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yobo
Registered: Jul 2007
Posts: 157 |
09-02-08 02:02 AM
"yobo ive done some simple testing on the forecast function and I didn't find anything of predicitive value, however as GGSAE suggests a combination of different measurements might work."
THe forcast function is exactly that a forcast function based on linear regression. if you plug in the right numbers it will forcast a value. I plugged it in to forcast a pair ratio given the trends of the pair ratio mean and correlation. Actually kind of interesting when you do it for a significant sample size of pairs. You do not get what you would expect all the time.
Anyway sitll holding strong on the cf/pot trade. I danced around with CF last Friday capturing some small profits on scalps but at the end of the day balancing out the pair with a doubling down.
Still expecting the spread to come back in a bit in the short run.
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TraderD72
Registered: Oct 2007
Posts: 131 |
09-02-08 02:21 AM
Quote from Emilio_Lizardo:
If the pair gets much beyond 2 stdev, take your loss and get out.
If your strategy is defined as entering when the spread is at 2stdevs with setting a stop loss at 2.5 stdevs (just as an example) then setting a profit target at or near the mean makes sense (risking 1/2 stdev to make 2 stdevs).
However it seems if an entry at 2stdevs is good then >2stdevs for entry could be even better.
Adding a layer here (spread>2stdevs) makes sense if you still believe (for a reason you have tested, fundementals, technicals,etc.) that the pair is still going to converge.
I guess it just comes down to the system you have developed and tested out.
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gehko
Registered: Feb 2008
Posts: 179 |
09-02-08 04:21 PM
How is the correlation of the pairs being determined? I understand statistical correlation and how it is calculated, that is not my question, my question is more geared towards what variation (if there is any) of price is being used. Is it strictly price, variation of price from previous close to current close (last), or variation of price from open to close (last)? Or some other variation that i haven't thought of. As you can imagine any one of these could be "correct" but i am having a hard time finding what websites use for their correlation.
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yobo
Registered: Jul 2007
Posts: 157 |
09-02-08 04:41 PM
I use statistical correlation based on closing prices of the two stocks in the pair.
Interesting enough, the cf/pot pair is now profitable and underscores the importance of layers.
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gehko
Registered: Feb 2008
Posts: 179 |
09-02-08 06:43 PM
Quote from yobo:
I use statistical correlation based on closing prices of the two stocks in the pair.
Interesting enough, the cf/pot pair is now profitable and underscores the importance of layers.
Could you go into a little detail on when/how you layer and possibly what you look for?
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