If one is trading only 7 to 10 pairs then a 20% drawdown is a real possibility unless they are trading only contractual pairs or ETFs. Unfortunately, these vehicles offer very low returns unless you are trading them 1000 times a day and scalping 0.0001 cents. The Flash Crash wiped out a lot of leveraged pair traders. For an example of that period see page 5 of the pdf file below: http://www.pairtradingsignals.com/images/12.09.10.pdf They claim that their system survived the period but I don't see how a leveraged system could survive? I do give them credit for not deleting the trading results and acting as if it never happened. Another thing to be aware of is that every "Example System" that I have come across ignores dividends so the profits are often imaginary. The price drop in the short side resulted from the dividend but the trade was supposedly closed at a profit i.e. you had to pay the dividend because you were short the stock so the trade was not profitable. These example systems always seem to ignore trading costs, slippage and fees for holding short positions overnight ... hmm, why is that? You should also be aware that it is very easy to run backtests on a bunch of pairs, ignore dividends, throw out the losers and show an amazing Profit curve. I can assure you that your real-time trading results will be much different. I am not saying that you can't make money trading pairs; I'm just trying to add a bit of realism in regards to the possible returns. Keep in mind that this thread is over 400 pages long and the silence of others making these great returns is deafening.
Slave2Market Thanks mate for your response.. What you say about EXAMPLE SYSTEMS ...claims of returns is a reminder of the friends in the Forex market especially performance of $49 click bank robots... 1. A lot of the returns a hypothetical (overclocked, overleveraged) 2. Its interesting how during a blowup of the account theres a resetting of the ongoing "live trading report" back to zero and a resetting of the EA back to the same settings that blew up the account in the first place! Ive seen this many times. 3. Its interesting how in that market ive never encountered anyone who can show more than 12 months of LIVE trading results using real money and consistant trading pairs. 4. Its interesting how EAs are all experimental and come and go constantly. 5. There were people i saw load all the pairs on the brokers offering with a $500 account 6. People were trying to make unrealistic returns eg. LIVE off a $500 account eg. making $400 a month return from a $500 account leveraged at 1:200! Yes and you see a lot of vendors of systems and people online throwing around a lot of HYPOTHETICAL backtested systems and results but at the end of the day .. no one is making any money out of it.. its all just a case of mental masturbation.. You made some really really good points about slippage, etc spread .. these are all things to account for.
Another example today of bad pricing on the Pair Trader software. Picked up erroneous trade on CAT at 88.53 showing an enormous profit on longs taken last week. Stock has not traded over 75.20 as of 9:51 ET time.
Hey mate... Is that with IQ data or Yahoo? I was having some issues with PTF eg. 1. crashing 2. slow backtesting 3. zero data... gave the iq feed a try.. albeit its a cost but i noticed... 1. less crashing (none so far in last few days) 2. faster backtesting of the data 3. no buggy data... It just feels a whole lot better .. I think the Yahoo data is prone to a lot of errors which .. it did take some time desciding to make the shift but i will see how the trial goes but at the end of the day its like a race car running on a bald set of tyres .. free yahoo data one day will pop the wrong way and the cost of the IQ data will seem to have paid for itself.
If anyone is interested, I have created a website where you can backtest your pairs online. It uses the C++ based backtester I use for screening pairs. Please note the website is still in BETA stage and there might be bugs. Enjoy and good luck trading. I appreciate you report bugs you find. Address: http://www.pairtradinglab.com Example of some backtest: STNR vs HIBB: http://www.pairtradinglab.com/backtests/TrqryVR6Z_gcOY13
OK, you should be able to use any Google Finance instruments now. Example FXE vs FXB: http://www.pairtradinglab.com/backtests/Tr0QmBoyvfCrhgPE
I have altered the backtester so now it uses only Close prices in order to calculate the max drawdown and equity chart. The trick to show lowest possible equity using High and Low prices was nice, but unfortunately Google Finance seem to have too much errors in High and Low price series. Older backtests (result screens) will stay the same, this affects new backtests only. The method of calculation is indicated in the backtest result screen. For new backtests - equity chart and max drawdown is calculated using Close prices, in addition, max intra-day DD is displayed too (using the old HL method).