Registered: May 2004
08-25-08 12:18 AM
yobo, thanks for your input, I appreciate that, its always interesting to hear from another pair trader how they make their coin. There are so many different ways to pair trade, everyone can really customize their own style. If I were to trade pairs by divergence instead of mean reversion I would focus a lot on the fundamentals so that I'm long the strong, cheap stock and short the weak, expensive stock and I would probably use the ratio chart to ride the trend, maybe something for me to look at later this year.
IWT2008, I don't use stops, Ive used heaps of different strategies, systems and methods over the years and have not found stops to help one bit, they are a market maker's dream and a trader's nightmare, like yobo says your a/c won't be wiped out if you keep your trade size small, that's the trick of successful trading, make heaps of small trades, for me I never have more than 20% max of my a/c exposed to any stock and I use leverage so that I can have up to 15 pairs open at any given time, that's the beauty of pair trading, I would never lever my a/c that much on directional trading, also I use pairtrade finder, a program for my entry and exit signals aswell as layer my own analysis on top of those signals, I won't take them all blindly, I like to see a few other conditions upon entry, but for exit I take the signal without hesitation. I think entry is very important because you have a choice whether to buy or sell, whereas when holding a position your more inclined to exit at an given opportunity because you need to rotate your capital from old trades into new trades with better risk/reward characteristics.