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Old Mar 7th, 2010, 11:54 PM   #1
eyedy
 
 
Join Date: Nov 2006
Posts: 12
I've been reading pair trading related posts on ETrader site and wanted to ask question.

Anybody thought about intraday three way pair trading method?

For example, let's say there are three highly correlated stocks, ABC.

At 9:30 AM, A is up 0.9%, B is up 0.3% and C is up 0.1%

Difference between A and B(0.6%) is larger than the difference between B and C(0.2%)

1. A/B pair: Short A and long B on equal dollar basis assuming 0.6% gap will decrease

2. B/C pair: long B and short C on equal dollar basis assuming 0.2% gap will increase

so you have short A, short C and long B positions which are market neutral on total dollar basis.

Maybe it can be applied to index futures as well? (ES, NQ, YM)
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Old Mar 8th, 2010, 12:01 AM   #2
ksonsinc
 
 
Join Date: Aug 2005
Location: nyc
Posts: 1,164
Well in stock you can go long
SSO ultra long
SDS ultra short u are well hedged in stocks

For futures
GO long YM and short
NQ

Depending on the situtation
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Old Mar 8th, 2010, 12:45 AM   #3
rcj
 
 
Join Date: Aug 2005
Location: houston area
Posts: 1,614
I'll go with ES and YM. One sht and one long.

One strat. is do simultaenous mkt orders. Of course you
get reduced perf bond as well...but more commish.
A few little problems crop up though.
Like just when to pull the hedge on the loser.
Manual trading - you're often gonna have to work real fast.
Sim trade it.
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Old Mar 8th, 2010, 12:49 AM   #4
Baywolf
 
 
Join Date: Feb 2008
Posts: 227
http://www.tradingtechnologies.com/autospreader.aspx
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Old Mar 8th, 2010, 01:31 AM   #5
munnyhunny
 
 
Join Date: Jul 2009
Posts: 344
Crap idea. ES and YM are highly correlated, meaning you will have to put on as many NQ positions as you have from the others combined.
Proper pairs trading is usually done with ES and YM (short one, long the other) and yes you can you use the TT autospreader, but it is not necessary. Also be careful of blowout days where both instruments can tank.
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Old Mar 8th, 2010, 02:51 AM   #6
eyedy
 
 
Join Date: Nov 2006
Posts: 12
I don't think you need that many NQ contracts for this. it depends on each future's gap.

for example, at the open, let's say NQ is up 0.9% ES is up 0.5% and YM is up 0.4%

you are betting that NQ/ES will converge relative to ES/YM

so, you would have 3 open positions: NQ short, ES long, and YM short (ES position size would be large enough to cover both NQ and YM long to maintain market neutral)

this three way combination changes depending on how much each index changed compared to yesterday's closing value.

it's just an idea, i never backtested yet. anybody actually traded this way?
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