There was a really interesting pair trading article in Technical Analysis of Stocks & Commodities' March 2001 edition. I know that was a long time ago! But I was just going through my stack and that article jumped out at me because it seems to simplify a trading strategy that can easily get bogged down in math gobbildi-gook (you know what I mean! ) Anyway, I was wondering if anyone else read that article (or remembers it) or if anyone else has a March 2001 edition of TASC handy to review it with me because I had some questions re the strategy that it presents. If no one has it then I'll try to post excerpts from the article and present the gist of the idea. Its not rocket science but there are two or three places where I am not sure what exactly he means. ok I'll wait for some replies and if people are interested I'll go ahead and do that.
there was also one in april or may '02. if you've seen it, how does it compare to the one you're talking about?
Yes, TASC has published two pairs trading articles. The first was written by Stephane Reverre (also covered in Chapter 10 of his book The Complete Arbitrage Deskbook) and was geared towards multi-day trades. The second was written by Mark Conway and Aaron Behle (in Chapter 2 of their book Professional Stock Trading) and was oriented towards pairs day trading.
daniel, I don't remember one around April/May 02 and unfortunately I don't have TASC around that time. Do you have the article or just remember reading it? If you have it, give us a summary and we'll compare them. pound, yes! I'm talking about the Reverre one. Do you have his book?
Babak, If you're refering to the article on trading RD and SC (Royal Dutch and Shell) I believe I have that one. Do you have some specific questions for me to look up? Glad to help if I can. I've always found pair trading interesting, but I've never developed a system that I had confidence in. Always seemed to be a little too much luck involved with my methods.
yes the RD/SC article!! Here are my questions: 1] Regarding the normalization equation, define delta! (I think delta= {RD/SC} - 30MA(RD/SC) but I'm not sure because he doesn't define it explicitly) 2] In the Pairs Relationship box (upper left hand corner) I think he puts RD instead of SC in the last sentence of a paragraph. It caught my eye because he mentions the ratio of RD to RD which makes no sense! 3] The July 98 data that he provides as samples do not jive with my July 98 data (the prices of SC and RD are WAAaay off -- was there a split/reorg ?!?!) 4] PnL diagram doesn't make sense! Look at the right hand corner and notice there is a bunched up group of + bars. This should make the cumulative PnL line go up. But it goes down! Those are the main sticking points Maybe we should put up the gist of the article so others (without the article on hand) will know what the heck we are talking about!!
Let me pull it off the shelf and take a look at it this weekend. I actually modified his concept to trade the pair intraday, but it moved like molasses. Moved on to other things.. Might take me a day or so to get back to you.
The Pairs articles were great....and there is a full scale "white paper" published at Yale that is accessible as well. As far as TASC goes, all you have to do is call my radio show to get a free one year subscription. Saturdays at Noon Pacific time. You can get it on the web from anywhere....check my website. Don Also (minor plug here), you may want to check www.pairttrader.com for some great information.
Thanks Don, what's the number of the radio show? I checked out www.pairtrader.com after reading about it on your OO thread. I must say that it is a little less 'snake oily' than www.pairstrading.com But there isn't a whole lot of info on the site, unless you consider the schedule of fees to be a wealth of info I'll write/call them and say you recommended me (who knows? maybe they'll be so impressed I might get a free lifetime membership!! )