I've contacted Pairstradefinder and suggested that in the new version, the log ratio is used as opposed to stock1/stock2. Using the log ratio allows you to compare stocks with different prices-be cautious trading pairs with different prices until this is incorporated as you can get skewed results. EDIT: Intraday has been especially poor recently however some of the daily pairs are performing. There are still a few very stubborn pairs that are continuing to divert. Intraday momentum may be due to earnings season? Any thoughts on how earnings are affecting pairs?
Is this because lower priced stocks naturally tend to have higher volatility? Does the log ratio equalise the value of the instruments?
Screenlocal, I trade $$$ neutral. I tend to like pairs that have similar share prices, I wouldn't trade a $100 stock against a $10 stock.
Nice thread and job Jonny. Just a question : It 's possible of pair trading on Forex Market ? Because some pair are very correlated by example EURJPY with GBPJPY. Someone trade pair trading on Forex ? Regards. Ludo.
Thanks Surfeur, I imagine you could pair trade forex, however forex is already in pairs, in your e.g. trading those two pairs would be the same as trading EUR/GBP. Id rather pair trade stocks as there's 1000's of liquid stocks giving millions of possible pair combinations so you can really hone in on the best trade opportunties.
What do you mean by no bigger than 30% of the ratio. Also why do you avoid taking new ratio high/low.
By 30% I mean if the ratio is at 1.00 I don't want the 6month low below 0.85 and the 6month high above 1.15, not a solid rule but a general rule, also I don't want to fade the direction of strong ratio trend that generally occurs when the ratio is making new 6month high/lows.
Do you pay attention to market cap size... meaning say one stock is $5bil market cap and the other is $50bil- would you consider this a valid pair?
Closed one trade today for good profits, made 3pts on each side; Sold HES @ 53.87 Covered APC @ 30.62 No new trades.