ok.. first question for all you pair traders.. what books have you read and which ones would you suggest.. ive got this one to start Pairs Trading: Quantitative Methods and Analysis by Ganapathy Vidyamurthy i need more... give me more please thank you.... i don't care how technical they are or stupid they might seem.. just give me leads to information.. NEED MORE IMPUT! haha
The link posted here is from an ET thread: "How do you trade correlations" from the spring of 2010. I liked so many posts at that thread that I saved my favorites into a Word document to be kept in my archives. http://www.elitetrader.com/vb/showthread.php?s=&threadid=195067&highlight=options+pair+trading It would be helpful, though, to have already had a very basic understanding of terms used in pair trading due to the terms that are thrown around there, but you can get a lot just going in green, too. Make a note of the link so you can come back to it again after you have advanced yourself some. Definitely not the lazy man's way of doing things, but you can learn a LOT on this thread you are reading right now if you start at the beginning and scan through. Many posts make reference to information for pair trading you will find from books or treatises. Posts on this thread sometimes debunk some of this information and some posts herald them. I found scanning this thread from the beginning to be very valuable for me for background info. Yes, it will take quite a while, but so will reading a couple of books (that include some info some have debunked). Referencing my use of the words "terms used," you can work ET's search engine to find multiple posts on various threads using some of the terms. I have found that to be very useful, too; this is how I found the above cited link. Where you find a brain trust of wisdom on the subject, I like to read about it and let it sink in to mine. As awful as it sounds, though, I don't use any metrics or software at all. I use a tool: a divider. I use it on my monitor to measure distance between stock plots on many different terms (chart length time of paired stock plots.....3-YR chart, 1 YR chart, 10 day chart and many in between. For my own reason, I look at longer than 3 years). It's all visual to me. As primitive as can be ! It has worked exceptionally well for me. The drawback I have experienced: I am very bad at exits, getting out WAY too prematurely on my swing trades, excellent with my scalping. But the big money is in the swing trades unless one wants to sit in front of the monitor all day scalping everyday. Good luck on your exploration. It is worth the effort and fun learning IMHO.
totally true! i didn't get into trading to burn my eyes out staring at a chart all day scaling.. i did it so i could make the premium on all the small moves and make funny money on blow out tail events... i'll read the thread... there is alot of slang in the traders world your right.. some of it is intuitive some isn't.. i just limp along untill it makes sense.. thanks.. on to reading.. i'll be bacck.. visualizations are the only way we can interpret reality anyway right.. so that makes complete sense.. the best way to tell you about a rock.. is to show you a rock! haha
i'm going to do what i can to revive this thread.. cause i'm intereting in mean revertion trading.. and i'm of course a lover of what options can do for me... so... i just read this article from another thread.. i'm going to keep reading it.. but i like the idea of putting on a credit spread to be short the deltas on the one constituents and put a debit to get my long deltas on my other constituents.. the whole idea behind using options at all is such that you can bank a higher percentage game with less dollar amount invested and less dollar amount at risk... "Tom Preston: The main disadvantage of verticals is that they donââ¬â¢t always respond to changes in the spread. Even if the spread moves from 25 to 30, sometimes the stocks might move so far (a situations the stock positions wouldn't have a problem with) that both verticals go to either full value (deep in the money) or zero (far out of the money). In that situation, the profit or loss on the long vertical is offset entirely by the profit or loss on the short vertical. And thatââ¬â¢s where the initial credit is so valuable. It letââ¬â¢s you make a small profit, or at least cover commissions, in that scenario. Tom Preston: When pairs trading with verticals, I like to have the difference between the strikes to be the same for both. That is, I would buy a 2 point IWM call vertical and sell a 2 point QQQQ call vertical. That way, the max profit on the long vertical can offset the max loss on the short vertical."
Well SOMEONE must believe in this Head & Shoulders (reference my post yesterday on the TRADING forum / Charts of Note thread 08-14-12 at 02:48 PM asking if a Head & Shoulders formation on a 10-Yr chart has significance). A report today states a very bearish trader just put on an extraordinary heavy PUT position on HOT (Starwood)....which is a holding co. for various hotel chains. article: http://finance.yahoo.com/news/bearish-trader-checks-starwood-160736212.html btw..... Since halving my position yesterday on my pair, HOT short / HST long, today through the session with 90 min remaining, HOT has had more strength upward in price than my HST, but the now weakened pair trade position is still in the neighborhood of its best position established yesterday. (Quite the run-on sentence.) <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3600547>
Mining for paired trades with HOT and HST: See chart below. (The primary location for my posts are the Trading forum / Charts of Note and the Tech Analysis forum /Spread Trading, although the latter I may not be posting at much more which is true of this thread, which is all but dead.) This chart is a screen shot from mid-session today. Annotations applied an hour later. Having gone flat on a notable chart for a pairs trade started Aug 1, by legging out of it a number of days ago, an opportunity may commence to leg back in. Opportunity may present again with Shorting HOT Long HST This recommendation intended for only myself: When the terminus of these stock plots are narrowed in half the current distance between them as shown on this chart, begin accumulation of new position. Again: The recommendation is intended for myself and not meant to be for anyone else; <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3609593>
has anyone used the volatility of one constituents against another in pair trading for any sort of further look into how the pair trades against each other? i'd love to get some feed back on this... heres a good example of it in this article.. http://www.tradestation.com/en/education/labs/analysis-concepts/rsi-volatility-spread
Reference my Aug 27 post suggesting the commencement of a new trade by accumulation of shares Short HOT Long HST when the spread narrows in future days by half the distance at the terminus of the stock plots displayed at closing Aug 27. The chart showed a 6% difference in the spread Aug 27 at closing. Today's close shows a 3% difference. The threshold is now met to begin accumulation. The opening date of this chart is Aug 1. But I entered the trade not at the start of the session on Aug 1, but much later in the session when the spread was more favorable to enter the trade. My tick meter showed at end of session today a significant, remaining spread necessary to narrow in order to get to the start of my original trade. A conservative approach would be to wait before biting. The potential, however, is so good for success that legging in Thursday should today's closing spread hold is reasonable, too; there is a big margin for error for early entry. NOTICE: Be advised future posts by Deucy28 will be restricted to CHARTS OF NOTE in the TRADING FORUM (top of page of list of Forums) <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3611419>
Back to PTF, I've been involved in a longterm project outside trading and therefore havent been using PFT for a while. I've also had to change computer as my other developed a fault on the C: drive. I installed the latest version of PTF, created a load of groups, found some good pairs and was continuing when an error box appeared telling me the app had to quit. On re-booting I found all the work had been lost - 3 hours worth of work. So my advice to anyone else using the app is to quit regularly and hopefully it will save when quitting.
Reference my 8-29-12 post Short HOT Long HST Please see updated chart at TRADING forum / Charts of note. http://www.elitetrader.com/vb/showthread.php?s=&postid=3616208#post3616208