pair swing trading.

Discussion in 'Trading' started by coolweb, Jul 8, 2007.

  1. You know, after trading for awhile, I can be the 525th person to tell you, the market is a crazy nut. I could never tell you what will happen tomorrow. Its like a roulette wheel.

    almost everything moves in close to lockstep with the market, but the part where a GOOD stock differs from a bad STOCK is espically when the market is in "consolidation",
    Usually good stocks go up during when market consolidates, like right now.
    Bad stocks go down when market consolidates or drop a little like now.

    This current trade was

    a LONG in CMI
    a SHORT in KBH
    in a equal dollar amount.

    My understanding was that KBH was a definate downer when the market goes down, it would be the first stock to be sold. And CMI would be the first stock to be bought if the market went up.

    Interesting, it played out perfectly, EXCEPT
    The first 1 day, the spread went a little crazy as in I was down like 1%, but after the 2nd day, it all synced up and started profiting.

    I did this same type of short in my journal on KBH almost 2 years ago! Same exact trade, not with cmi, but with another stock.

    What problems do I see in this type of trading?
    I may not be able to find an opposite "100%" down candidate to pair along with my 100% up candidate at most times.

    I do know about how people shorting and longing stocks in the same industry, like KO / PEP.
    I think that was an excellent idea... Because if one stock was a valid takeover target ++ You have signals on it... it would gap up like 15% while you are short the other stock in the industry. Its a low risk bet.

    I was chatting with a floor optinos trader, and what this dood does is
    he buys S&P futures calls ITM and sell OTM calls within the same month,
    And he would play the spread when it gets tight and sell when it gets wide, And this would be a very consistent method.

    Because the reversion to mean is actually something you can count on, but the direction is not.

    He hardly ever bet on the direction of the market........

    I think that should be emphasizzsed.

    I know this is a pretty known topic, nothing "surprising" would like to hear other peoples thoughts about removing market risk from the equation , since it is RANDOM.
  2. rambling again...
  3. You should participate in this discussion, I find you very smart compared to the rest of the people in this world.

    You would be an asset to this topic, Seriously!
  4. I wish I could be more helpful but a lot of people , my self included, make the mistake of taking a few instances of anecdotal evidence and passing it off as some sort of scientific truth.

    You make this statement:

    "Usually good stocks go up during when market consolidates, like right now.
    Bad stocks go down when market consolidates or drop a little like now."

    It isn't 'bad stocks' that go down when the market consolidates; most stocks do go down or else it wouldn't be a market consolidation.

    Buying stocks that are holding up well such as RIMM, GOOG, MA, etc is a very viable strategy provided you don't buy garbage such as BCON or HOKU.

    If you have a method that works just go make money. No need to tell us about it or at least wait till you have more evidence that it works.
  5. stocktrader,
    Well, thats a good response.

    Usually in normal business, we have associates we take out to chat or shoot the shit on ideas we are working on , Espically what we are doing at the moment and which is making money.

    Surely you must have some associates you chat with on your ideas in trading?